The UK is on the brink of sinking into the Atlantic, the pound is about to crash to US$0.01 any minute now, and the country is ready to default on its loans, heralding an end to society as we know it.

Citizens from all over are beginning the biggest bank run in history as we all withdraw our cash from sovereign institutions and put everything into trustless crypto assets.

Despite being essentially useless as a medium of exchange, bitcoin will likely become the national currency of choice within weeks.

I am, of course, being flippant.

But there is a mini-crisis happening, in no small part to chancellor Kwasi Kwarteng’s so-called mini-budget (why we’re not calling it the Kwasi-budget is beyond me).

The pound hit an all-time low against the US Dollar in recent days and some strategists are foreshadowing parity by the end of the year.

With that in mind, could institutional and retail investors alike be reconsidering their position on the likes of bitcoin, ether and other digital assets as viable investment instruments?

I’d exercise caution, though sentiment is certainly heading in an upward direction in some circles.

Investors’ outlook

Research from London-based Nickel Digital Asset Management shows an increasing appetite among the UK’s professional investors.

While most investors do predict more downside in the near future, 56% see the winter coming to an end within six months.

According to the digital assets hedge fund manager, more than one-fifth of professional investors reckons BTC valuations will rise over the next two quarters, while another 6% think there will be no further declines in valuations.

Anatoly Crachilov, Nickel Digital’s chief executive officer, said: “It is a well-grounded long-term optimism. 

“Investors acknowledge that the ongoing crypto winter still has some way to run but there is also a recognition that, if history is any guide, once the winter ends these high-beta markets will stage strong recovery.”

But despite the allure of short-term and long-term gains in the speculative asset, hesitation around investing in cryptocurrency remains high among retail investors.

That was the verdict of a 10,000-strong global survey conducted by consumer research firm toluna.

The justifications for the average Joe’s hesitancy come as no surprise: riskiness, perceived lack of security and a lack of technical understanding being the main barriers to adoption.

Toluna’s senior director of southeast Asia Christine Tan said: “Education around crypto is vital – and something many providers need to work on to ensure people are fully aware of the role of cryptocurrency and the reasons to invest – and also when not to.”

While risk, security and complexity are perfectly reasonable things to be worried about, it slightly misses the point.

Volatility is king

A crucial stress test for any safe haven asset is how it acts in times of volatility. Bitcoin was once considered an inflation hedge, a view that has all but disappeared as it failed the test of time.

That makes it a risk-on asset and should be treated as such. The fact of the matter is, volatility is baked into the DNA of bitcoin.

Traders can make bank in a brief window by longing or shorting appropriately- it’s what makes it an attractive trading instrument. 

This incredible risk/reward potential is what makes it so fun to speculate on.

But even the most active bitcoin investors can’t predict how it will act over a long period, and if they say otherwise, they’re pulling your leg.

That makes it a pretty big gamble for a pension fund manager if they’re not diversified appropriately.

What even is cryptocurreny?

If bitcoin isn’t an inflation hedge, nor a currency, what is it? Investors are still figuring that one out.

But one thing is for certain: Even though institutions still don’t know how to classify cryptocurrency in the investment milieu, they do at least take the view that it is an asset and not some arcane piece of digital technology.

It hasn’t always been the case.

Duncan Trenholme, co-head of digital assets at financial services firm TP ICAP, has seen a shifting attitude to Bitcoin and crypto assets in general in recent years.

"I would say that in terms of the view from traditional financial firms, we’ve moved from the question of ‘are these assets here to stay?’ to ‘ an acceptance that whilst the markets are currently in a bear cycle, this is now an institutionally investable asset class,” said Trenholme. 

But proved itself or not, in many ways actual hands-on involvement among UK investors simply does not measure up against the headlines and conversations that cryptocurrencies generate.

Technical barriers create 'a certain inertia'

There are some technical barriers between a professional investor’s interest in crypto and actual implementation into their portfolio, which makes it hard for an institution to wake up, see a crashing pound, and decide to redistribute their holdings.

“For an institution to come into crypto, they need to go through an internal change process, seek the necessary approvals, and decide on which service providers to use. 

“This has certain inertia, and it requires a coordinated effort driven by commercial demand or a strong investment thesis,” explained Trenholme.

He continued: “The majority of our traditional customers have had limited ways to access the market to date… (But) we're seeing that change as more traditional providers enter the space. 

“We have more clients than we did last year and we are expecting there will be more next year, but the majority of the addressable market have yet to make that move.”

So yes, sentiment among UK investors in regards to crypto assets seems to be improving, though perhaps less because they’re performing well (with two-thirds wiped from the market this year alone, they definitely are not) and more because government policy seems hell-bent on killing the pound’s worth as a sovereign store of value.

Read the full article at Proactive news here.