(Bloomberg) -- Cryptocurrencies are no different from the coins in your favorite online game, according to Richard Bernstein.
The difference between earning coins by playing Candy Crush to earning cryptocurrencies from solving sophisticated mathematical formulas is that cryptocurrencies are tradeable, the head of Richard Bernstein Advisors LLC said in a note Wednesday.
And it's that ability to be traded that's fueled what the former Merrill Lynch chief investment strategist says is a classic asset bubble. The coins have increased liquidity, increased use of leverage, democratization of the market, increased turnover and increased new issues, Bernstein said.
The presence of a bubble doesn't mean that the economics and businesses related to cryptocurrencies aren't viable, but “suggests that the return-on-investment could be considerably lower than investors currently expect,” Bernstein wrote.
Speculators should want regulation and oversight of the cryptocurrency markets to ensure proper counterparty protection and eliminate fraud as blockchain technology alone won't be able to eliminate these risks, according to the report. “There are now over 1,300 cryptocurrencies and it seems reasonable to assume all 1,300 are not of equal quality,” the note said.
To contact the reporter on this story: Camila Russo in New York at crusso15@bloomberg.net.
To contact the editors responsible for this story: Michael P. Regan at mregan12@bloomberg.net, Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka
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