Cryptocurrencies, a digital media of exchange originally designed in response to the global financial crisis, are once again grabbing headlines. After a gain of more than 1000% in 2017, their combined market value fell close to 80% over the next 12 months. Recently however, bitcoin has rebounded substantially, surpassing its all-time high, and investors are once again questioning the potential role of cryptocurrencies in a broad investment portfolio (Exhibit 1).

As COVID-19 wreaked havoc through 2020 on the global economy, monetary and fiscal policy authorities responded with stimulus measures that far eclipsed responses during the global financial crisis. For example, over a three-month span in 2008, the U.S Federal Reserve (Fed) added $1.3 trillion of assets to its balance sheet. By comparison, in the three months following the first mandated COVID-19 shutdowns, the Fed added roughly $3 trillion in assets to a balance sheet that now tops $7.2 trillion (Exhibit 2).

Throughout the first half of 2020, growing economic uncertainty and a weakening U.S. dollar (due to the growing debt to GDP position of the U.S.) drove investor interest in traditional “hard” currencies such as gold and silver. Following the U.S. election in November, bitcoin in particular rapidly appreciated on the prospect of additional fiscal measures, as well as positive vaccine news, both of which raised the spectre of inflationary pressure (Exhibit 3).

As technology disruptors, cryptocurrencies and blockchains, or the public digital ledgers where cryptocurrency transactions are recorded, do appear to have promise. The digital assets tend to attract individuals seeking a degree of privacy that they cannot get from conventional banking and payment systems. Meanwhile, corporations, entrepreneurs, venture capitalists and even central banks and government institutions are more interested in the underlying technologies driving cryptocurrencies.

Many organizations are looking at how this technology can be used to improve operations and business outcomes. Their aim is to create a direct, secure and verifiable person-to-person system for payments that would be entirely private and digital, thereby removing traditional third-party intermediaries like banks. Whether this leads to actual paradigm shifts or just fosters marginal enhancements to businesses remains to be seen. Ironically, wider acceptance of these technologies may require more centralization and third-party verification, which would cause them to become more similar to the systems they were designed to replace.

As can be expected given the nascent currency or technology, cryptocurrencies can exhibit extreme levels of volatility. Bitcoin, the most widely followed cryptocurrency, has exhibited realised volatility in excess of 100%, far exceeding that of the S&P 500 Index, gold or the euro. (Exhibit 4).

The cryptocurrency market is just beginning to mature, and the supportive value of digital coins remains difficult to price. We view them as highly speculative instruments, which makes them an unsuitable investment choice for pursuing important financial life goals—particularly for investors who can’t afford the high risk of permanently losing money. In our view, it is far too early to consider including cryptocurrencies in a strategic investment portfolio.


















Important Information

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.

The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment.

This commentary has been provided by SEI Investments Management Corporation (“SIMC”), a U.S. affliate of SEI Investments Canada Company. SIMC is not registered in any capacity with any Canadian regulator, nor is the author, and the information contained herein is for general information purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from qualified professionals. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds.

This material may contain “forward-looking information” (“FLI”) as such term is defined under applicable Canadian securities laws. FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. FLI is subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from expectations as expressed or implied in this material. FLI reflects current expectations with respect to current events and is not a guarantee of future performance. Any FLI that may be included or incorporated by reference in this material is presented solely for the purpose of conveying current anticipated expectations and may not be appropriate for any other purposes.

There are risks involved with investing, including loss of principal. Diversification may not protect against market risk. There may be other holdings which are not discussed that may have additional specific risks. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Bonds and bond funds will decrease in value as interest rates rise.

Information contained herein that is based on external sources is believed to be reliable, but is not guaranteed by SEI Investments Canada Company, and the information may be incomplete or may change without notice.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.