Despite the stance of cryptocurrencies as a promising emerging asset class, there are clear cut concerns from potential investors around availability of liquidity, potential lack of regulation, pricing, and scalability, according to ETF Securities.
Commenting on the current foothold of cryptocurrencies in the market, ETF Securities head of research and investment strategy, James Butterfill said trust in the money creation process and the fundamentals driving hard currency alternatives had declined.
“An investor in digital currencies must also ask themselves, what are the fundamentals that drive these currencies?” he said.
“There aren’t many established fundamentals yet, trading more on technicals/momentum for now.”
The liquidity around leading blockchain technology-based cryptocurrency Bitcoin had increased, but Butterfill said investors had expressed concern that much development remained in unregulated and diverse exchanges located outside of Europe and the USA.
Regulators had done little to curb investor concerns, with the Securities and Exchange Commission (SEC) against legislative supervision for Bitcoin trading markets linked to regulated ones.
“The SEC made clear in its recent decisions in refusing approval of a US Bitcoin ETF that there is no appropriate regulatory supervision of Bitcoin trading markets that link to traditional regulated markets,” Butterfill said.
There were also increased concerns around system vulnerability, coding breaches, and hacking.
“Technical problems pose real risks to emergent digital currencies at the moment,” Butterfill said.
“Cryptocurrencies are very much an emerging asset class and the technology underpinning it is steadily developing, however… there are intensifying issues.”