Investors should only consider cryptocurrencies such as bitcoin if they are prepared to lose everything, BlackRock Investment Institute said in its weekly report Monday.
"We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet for now we believe they should only be considered by those who can stomach potentially complete losses," Richard Turnill, BlackRock's global chief investment strategist, said in the note.
Turnill noted cryptocurrencies' high volatility, fragmented markets and lack of regulation. "We don't see them becoming part of mainstream investment portfolios soon," he said, adding that their volatility makes U.S. stock market turbulence during the financial crisis "almost look placid."
Cryptocurrencies also haven't been able to protect investors from sharp drops in stocks. That's despite arguments for investing in the digital assets given their low correlations to traditional assets.
The digital currencies had "no ability to mitigate portfolio drawdown during periods of acute market stress like equity flash crashes of August 2015 and February 2018," J.P. Morgan Securities' John Normand said in a Feb. 9 report.
Bitcoin, the largest cryptocurrency by market capitalization, leaped 2,000 percent to above $19,000 in the 12 months through mid-December. The surge of interest spurred the world's largest futures exchange, CME, and its competitor, Cboe, to launch bitcoin futures in December as well.
Enthusiasts expected the derivatives products would pave the way for more institutional investor participation and even the launch of bitcoin exchange-traded funds later this year.
However, the U.S. Securities and Exchange Commission has asked companies to withdraw their applications for bitcoin ETFs. Trading volume in the CME and Cboe bitcoin futures also remains relatively low compared with other, more widely traded products.
Bitcoin has lost about half its value in just about two months and was trading near $10,000 Monday.
BlackRock's Turnill expects cryptocurrencies will need to overcome significant challenges in order to gain wider appeal.
He noted the blockchain technology underlying cryptocurrencies would require a "massive shift" in software development for broad adoption. Regulators would likely need to play a major role in such a shift, Turnill said. He does expect a global regulatory framework on cryptocurrencies to emerge, potentially from a G-20 meeting set for March.
BlackRock had $6.28 trillion in assets under management at the end of December as the world's largest asset manager.