Going Down the Cryptocurrency Rabbit Hole

We aim to help arm investors with knowledge of the cryptocurrency investment landscape and provide tools to evaluate the many digital asset options.

By Daniel J. Brady

Aug 23 2021 | 1 min read

When you hear the word cryptocurrency, do you immediately think “bitcoin”? You’re not alone. The cryptocurrency (crypto) world has evolved dramatically since an anonymous author(s), under the pseudonym Satoshi Nakamoto, penned a brief white paper in 2008 detailing the mechanics of what we’d soon come to know as bitcoin. While bitcoin is still the largest crypto by market capitalization, there are now some 6,000 in existence today.

For some, the crypto universe has evolved beyond its origins as a new payment technology and is instead viewed as an exciting investment opportunity. Bitcoin reached an all-time high of more than $61,000 on March 12, achieving a 300% annualized return over the last 10 years. Given this impressive return, it’s natural to see an increase in investor interest. However, in the short history of bitcoin, we have seen its price reach euphoric highs only to be followed by historic crashes. So, while it’s understandable that investors may be asking if “this time is different,” given the extreme volatility and uncertainty in determining appropriate valuations, we still view bitcoin and other cryptos as speculative investments and not suitable for all investors.

If that’s the case, what is this publication all about? Well, despite our views on crypto as a highly speculative investment, we believe the world of digital assets has reached a critical mass that gives us confidence that it’s more than just a passing fad. Therefore, our aim in this white paper is to help arm investors with knowledge of the crypto landscape and provide tools to evaluate the myriad crypto options.

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Important Legal Disclosures and Information

Investments in cryptocurrencies or digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in this area are not suitable for any investor that cannot afford loss of the entire investment.

DIGITAL ASSET INVESTMENTS SUCH AS DIGITAL CURRENCIES MAY BE SUBJECT TO LEGISLATIVE AND REGULATORY CHANGES OR ACTIONS AT THE STATE, FEDERAL, OR INTERNATIONAL LEVEL WHICH MAY ADVERSELY AFFECT THE USE, TRANSFER, EXCHANGE, AND VALUE OF DIGITAL/CRYPTO ASSETS. Depending on its characteristics, a digital asset may be considered a “security” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Accordingly, digital assets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Investors should conduct extensive research into the legitimacy of each individual digital asset before investing. The features, functions, characteristics, operation, use and other properties of the specific digital asset may be complex, technical, or difficult to understand or evaluate. The digital asset may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the digital asset’s blockchain or other underlying technology.

Blockchain is a nascent and rapidly changing technology and there remains relatively small use of blockchain networks and blockchain assets. The development of blockchain networks is a new and rapidly evolving industry that is subject to a high degree of uncertainty.

Factors affecting the further development of the blockchain industry include: continued worldwide growth in the adoption and use of blockchain networks and assets; the maintenance and development of the open-source software protocol of blockchain networks; changes in consumer demographics and public tastes and preferences; the popularity or acceptance of the Bitcoin or Ethereum networks; the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; government and quasi-government regulation of blockchain networks and assets, including any restrictions on access, operation and use of blockchain networks and assets.

The application of distributed ledger technology is novel and untested and may contain inherent flaws or limitations. Blockchain is an emerging technology that offers new capabilities which are not fully proven in use. There are limited examples of the application of distributed ledger technology.

The creation and operation of digital platforms for the public trading of blockchain assets will be subject to potential technical, legal and regulatory constraints.

For definitions of indexes used in this publication, please refer to pnc.com/indexdefinitions.

These materials are furnished for the use of PNC and its clients and do not constitute the provision of investment, legal, or tax advice to any person. They are not prepared with respect to the specific investment objectives, financial situation, or particular needs of any person. Use of these materials is dependent upon the judgment and analysis applied by duly authorized investment personnel who consider a client’s individual account circumstances. Persons reading these materials should consult with their PNC account representative regarding the appropriateness of investing in any securities or adopting any investment strategies discussed or recommended herein and should understand that statements regarding future prospects may not be realized. The information contained herein was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy, timeliness, or completeness by PNC. The information contained and the opinions expressed herein are subject to change without notice. Past performance is no guarantee of future results. Neither the information presented nor any opinion expressed herein constitutes an offer to buy or sell, nor a recommendation to buy or sell, any security or financial instrument. Accounts managed by PNC and its affiliates may take positions from time to time in securities recommended and followed by PNC affiliates. Securities are not bank deposits, nor are they backed or guaranteed by PNC or any of its affiliates, and are not issued by, insured by, guaranteed by, or obligations of the FDIC or the Federal Reserve Board. Securities involve investment risks, including possible loss of principal.

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