- $1 trillion asset manager Insight Investment’s head of currency solutions is avoiding bitcoin.
- Francesca Fornasari explained to Insider why it may not be an effective inflation hedge.
- Regulators likely to discourage adoption of privately sponsored cryptocurrencies, Fornasari said.
- See more stories on Insider’s business page.
Bitcoin soared this year in part due to investors’ belief it could be an alternative to gold because of its ability to hedge against fiat currency inflation. Beyond the bitcoin bulls, traditional institutions like Morgan Stanley have expressed enthusiasm about crypto’s role as a hedge in a diversified portfolio.
London-based Insight Investment, which manages over $1 trillion in assets for institutional investors globally, is not convinced. Francesca Fornasari, head of Insight’s $70 billion, 24-person currency solutions team, thinks bitcoin is unsuitable for most institutional investors because of its volatility and risk.
Fornasari, who came to Insight in 2019 after a 13-year tenure in fixed income and foreign exchange at Goldman Sachs Asset Management, told Insider that the last few months alone challenge the thesis that bitcoin is a strong hedge against inflation. She noted that even as inflationary fears ran high in the market, bitcoin’s price dropped over this period.
Bitcoin was trading around $60,000 at its peak in April and has hovered around the $35,000 mark for most of June. Fornasari said that “maybe in ten years’ time” bitcoin will prove itself as an effective macro inflation hedge, but that its value as such is currently “far from certain.”
Fornasari said that many of Insight’s institutional clients are concerned about protecting themselves from sky-high equity valuations crashing back down to earth.
In the past, investors have held bonds to protect against a downturn in equities because of the yield they provide. Now, bond prices are high and inflation has driven yields low, so bonds are “unlikely to give you the same protection that is giving you in the past,” Fornasari said. Investors are looking at trading currencies as an alternative means to generate returns uncorrelated with the broader equity market, she added.
As institutional investors seek diversification and as bitcoin passed the $1 trillion market cap mark earlier this year, Fornasari said Insight, like many of its peers, was forced to ask itself if bitcoin was “becoming too big to be ignored.”
She said that the average institutional investor should assess whether Bitcoin is going to become a mainstay of the payments system.
While bitcoin is the largest and most liquid cryptocurrency, giving it a “first-mover advantage,” Fornasari said she is skeptical that it will take significant market share as a payments system because of its high transaction fees and volatility.
“Even though we trade a fair amount of pretty volatile assets, there’s nothing in the universe that we trade that has the volatility of 100%,” Fornasari said of bitcoin.
Regulation poses a threat, too. Globally, countries like Turkey and India have banned crypto as a form of payment, and this week UK watchdogs banned Binance, the world’s largest crypto exchange, warning it was operating without direct regulatory approval.
She expects that the United States Securities and Exchange Commission will also clamp down on the asset class, as central banks are incentivized against privately sponsored cryptocurrencies becoming a dominant form of payment.
“It is an issue for central banks that if you move to a point in which most of the most of the goods exchanged in the economy are not via traditional fiat currencies, but via privately sponsored currencies. It changes the way that central banks can implement monetary policy,” Fornasari said.
However, she isn’t writing off blockchain technology as a whole.
“There will be a push to make sure that central bank-sponsored digital currencies are the main form of digital currency,” Fornasari said.
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