Cryptocurrencies are an intriguing trading instrument, but are not the right call for investors’ portfolios, according to Yves Bonzon, CIO at Julius Baer.
In his latest comemntary, Bonzon said cryptocurrencies are very advanced from a technological standpoint but are underdeveloped when it comes to management systems.
He added that if currencies, such as bitcoin, were to become currency used by countries this would have a big deflationary effect due to bitcoin's constrained quantity in circulation.
‘When you think about the amount of time, energy and money printing that has been spent reflating the global economy it would be completely absurd to up the deflationary currency system.’
Bonzon said bitcoin has been highly correlated to Chinese outflows in the recent past. ‘It might be that some of these Chinese capital outflows have been executed through the purchase of bitcoins.’
He added that cryptocurrencies are not effective as value stores and even if investors don’t like the US dollar they are still better off investing in such assets like gold and S&P 500.
In the wider market, Bonzon said current valuation levels could be a cause for concern if something were to trigger a change in management behaviour.
‘If the price/earnings ratio of equities is at a point when the cost of the issuing equity is so cheap and so advantageous that US companies will turn from net equity withdrawers into net equity issuers, that will be a sign that we are reaching dangerous territories.’
Bonzon said his investment convictions might change only if the markets reverses its current course.
‘We haven’t reached that point yet. First of all monetary conditions haven’t yet been tightened enough in the US for valuations to be challenged.’