The cryptocurrency industry is broadly moving toward a more speculative system amid political influences and one professor of financial accounting advises investors to stick to some of the mainstay assets in the industry or avoid the sector altogether.
Erica Pimentel, a professor at the Smith School of Business, said in a recent interview with BNNBloomberg.ca that it’s difficult to ignore the political ties emerging from U.S. President Donald Trump’s administration and the crypto industry. Last month, Bloomberg News reported that Trump will host a dinner later this month with the top 220 holders of the president’s meme coin.
“I think when you have an elected official that has all these overlapping commercial interests with their government activities, it becomes especially dangerous in an area like crypto that’s already sort of on the margins in terms of regulation and is already very vague and very misunderstood, and then it leads to market manipulation, because you have these huge shifts in price that occur every time Trump makes an announcement,” she said.
Around 10,000 digital wallets engaged in transfers of Trump coin after the dinner was announced, Bloomberg News reported, which marked a 200 per cent increase from the previous day. The activity appeared to be dominated by smaller owners of the meme coin.
Pimentel said there is also a large degree of correlation between the prices of different crypto currencies and when Bitcoin prices move, so does the price of all other crypto assets.
“So, we’re seeing these ripples caused by this new activity by Trump on his meme coin. Inevitably, we’re going to have market manipulation” she said.
“We’re going to have price movement on these other coins as well. So, it ripples across the crypto space, and all it does is undermine the credibility of crypto as a possible legitimate financial asset, for investment, for savings, for wealth creation.”
In the current environment, Pimentel said she sees a lack of regulatory safeguards, where institutional investors attempting to evaluate fundamentals may look at the industry and think “this is really just a circus.”
In early April, Bloomberg News reported the U.S. Justice Department moved to limit the types of crypto-related crimes it would investigate and prosecute to specifically focus on instances related to terrorism, drug cartels, victimizing investors and other limited areas.
“While some people might argue that the increased interest in crypto and Bitcoin brought on by Trump is a good thing, I would argue that it’s bringing the wrong type of attention to the space, and it’s delegitimizing crypto as a viable financial asset, because it’s being more and more dragged into the speculative space away from…like real economic questions,” Pimentel said.
As a result, she recommends investors either stick to a small number of digital assets or avoid the sector all together.
“I would literally tell people if you’re not investing in Bitcoin or Ether, which are kind of two coins that we’re comfortable with, or maybe like Ripple or Cardano or the top 10, stay away. Just stay away. Stay away from the meme coins. Stay away from the NFTs. Just stay away because there’s too much change happening too quickly, without a documented process to explain how these decisions are being made,” Pimentel said.
