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Cryptomania – Fad or the Future?
Cryptocurrencies are a digital currency used to transact and store value. They utilize encryption techniques and only exist digitally rather than traditional currency being established and regulated by a government and manifested in physical form. Bitcoin, the most popular cryptocurrency, was originally created with the intent to lower transaction costs by eliminating intermediaries such as banks and credit card networks and offer peer-to-peer transactions. In 2008, cryptocurrencies had particular appeal given trust in traditional currencies (e.g. U.S. dollar, Japanese Yen, etc.) and financial institutions was particularly low. Today, focus has turned from decentralized transactions to investors search for high returning, uncorrelated assets. Many have questioned whether their portfolio should allocate to bitcoin. Based on our analysis of the space, we recommend not allocating to bitcoin, or more broadly cryptocurrencies, and answer several common questions regarding the asset class.