“With serious investment philosophies, assets as volatile as cryptocurrencies cannot be purchased”

Alberto Matellán, Chief Economist at MAPFRE Inversión, puts it bluntly in an interview with Radio Intereconomía: “They are not an investment. For us, an investment involves an asset that has intrinsic value and generates cash flow.” He added that “With serious investment philosophies, such volatile assets cannot be purchased.” The expert even takes the opportunity to remind us of a key question that investors should ask themselves when deciding to make their first foray into the markets: “What does it mean to invest? Investing isn’t about buying something that you think will rise in price — that’s betting. Investment is about buying assets that generate value on their own and generate cash flow. A serious and well-made investment has a social impact, which is something that is becoming increasingly important.”

This latest cryptocurrency rally is occurring at a time of increased market optimism in general. The trend from November and December last year is in some way repeating itself. According to Matellán, there were—and still are—three factors behind the stock market rally: “The idea that the economy won’t be as hard hit by pandemic as expected; the publication of better macroeconomic data; and the abundant liquidity in the market.” It is precisely this abundant liquidity that is creating a significant collateral risk of potential phantom inflation in the short-term. As Matellán explains, “The Consumer Price Index, or CPI, is a matter of concern because it is rising sharply and will continue to rise for technical reasons (year-on-year comparison).” And, while recognizing that this is temporary, “There is the worry that so much liquidity might lead to a higher CPI, which would become problematic for fixed incomes and monetary policies.” He added that “It’s a substantial risk that we have to monitor.”

Major central banks are in a race to see who can pump the most money into the market. For now, the Fed seems to be winning, with the dollar expected to weaken further. “A higher exchange rate (euro) affects exports and inflation. It’s not great for Europe, but it is good for the world as a whole because a weak dollar means more global liquidity — and that is good for investors,” he concluded.