Wells Fargo Investment Institute Onboarding Crypto For Wealthy Clients

Improved regulatory clarity and rising interest in digital technologies are some of the factors that pushed Wells Fargo towards incorporating crypto funds into its Investment Institute.

The bank published the “Investment rationale for cryptocurrencies” report which provides more background information as to why the Wells Fargo Investment Institute (WFII) plans to add crypto to the fund.

“WFII believes that cryptocurrencies have gained stability and viability as assets, but the risks lead us to favor investment exposure only for qualified investors, and even then through professionally managed funds,” Allison Chin-Leong, VP of Public Affairs at Wells Fargo, told Street Insider.

The bank believes that the crypto space has evolved into a viable investment asset. It classifies cryptocurrencies and digital assets as an “alternative investment.”

“There are over 9,000 cryptocurrencies, with $2.4 trillion in capitalization (as of May 7, 2021), and this depth and breadth allow additional analysis of their trends. Short-term factors suggest further deepening of the market. We believe long-term supply and demand trends support further industry growth, the potential for further compression in price volatility, and a possible role as portfolio diversifiers.”

Wells Fargo adds that some events from 2020 accelerated the adoption and the mainstream usage of cryptocurrencies. For instance, banks received regulatory permission to custody cryptocurrencies, while the pandemic accelerated the digital economy.

“Cryptocurrencies do not pay interest or dividends, and there are no expected earnings to inform today’s prices. Yet, one sign of stability is that cryptocurrencies appear to be developing fundamental short- and long-term price drivers. Low 5- and 10-year correlations with traditional asset class returns hint that the long-term determinants of cryptocurrency prices differ from those of traditional investment assets. In this way, cryptocurrencies are potential portfolio diversifiers, which we believe adds to the stability and viability of cryptocurrencies,” it is further added in the report.

Finally, the WFII report talks about the maturing market as “bouts of rising volatility could persist, but, in our view, the evidence of their greater stability and long-term diversification potential together point to a viable investment asset for exposure in portfolios in a controlled way.”

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