The Banking Executive Magazine - May 2022 Issue

Cryptocurrencies and Blockchain Technology Cryptocurrency – growth asset or call option? Recently, a close correlation be- tween the prices of Bitcoin and tech stocks has led some investors to view Cryptocurrencies as a way to gain exposure to the tech sector. We would question this view for several reasons. First, this correlation could be not reliable, capturing retail in- vestors’ quest for “the next big thing” rather than evaluating the technolog- ical aspects of Bitcoins. Second. Cryptocurrencies lack es- sential of tech stocks likewise equity ownership and control. Such as Amazon, Apple, or Microsoft share- holders can play a role on these companies’ strategies, while holders of crypto doesn’t have these features. In addition, growth stocks with no current dividend have high valua- tions, due to the prospect of future dividends or buybacks. The valua- tion of Cryptocurrencies, which lack both earnings and values, is more problematic. Finally, Cryptocurren- cies are significantly more volatile than tech stocks. More likely, the most relevant way is to define a cryptocurrency in a port- folio as call option on its own under- lying Blockchain technology. Similar to that a call option holder cannot speculate the direction of the under- lying stocks, investors in Bitcoin can- not shape easily the evolution of the digital currencies. And, the holders of Cryptocurrencies most able to ab- sorb higher volatility than with equi- ties. the BANKING EXECUTIVE 40 ISSUE 161 MAY 2022