Citi Private Bank’s head of Asia investment strategy Ken Peng said that certain factors could make crypto investing viable but markets may not have seen the rock bottom just yet.
According to Citi Private Bank’s Ken Peng, the deep correction that cryptocurrencies have recently undergone – bitcoin nearly halved from its peak of over $63,000 in April – is «very reasonable» due to over-amplified bets in the market.
«There was too much leverage going into the space in the last leg of vertical takeoff and that leverage needed to be unwound,» Peng said at a virtual briefing yesterday.
But Peng also cautions against buying the current dip, highlighting that the market may not have bottomed due to other strong headwinds.
No Income, Like Gold
According to Peng, the performance of assets that yield no income rely on market liquidity which has been driven by unprecedented monetary easing worldwide.
«Bitcoin – like gold or anything else that doesn’t really generate income – has no real application. It’s very dependent on liquidity,» Peng said.
«And at the moment, the amount of liquidity from the [Federal Reserve] is just flooding. This type of excess liquidity is only fuelling speculation.»
Post-QE Crypto
Peng notes that the Fed’s growing cash balance despite its reverse repo program signals that quantitative easing is now «not necessary».
He also underlined that regulatory pressures are likely to continue affecting performance.
«I will become more comfortable with cryptos when the regulatory side is more settled and when liquidity conditions are more normal,» he reiterated. «In other words, not now.»
Equities: Risk-On
Even with a U.S. central banking pullback, Citi Private Bank expects inflation to rise, albeit moderately.
The bank continues to prefer equities over fixed income for potential outperformance over inflation rates. And within fixed income, it advises investors to focus on short duration and floating rate bonds as much as possible.
«But generally speaking, we don’t think this type of inflation and interest rates are going to cause major disruptions in financial markets,» Peng added.
