Navegó a una página que no está disponible en español en este momento. Seleccione el enlace si desea ver otro contenido en español.

Página principal

What do investors need to know about cryptocurrency and distributed ledger technology?

Wells Fargo Investment Institute - February 2018

The cryptocurrency market has been the subject of investor excitement and speculation, and, more recently, intensifying regulatory scrutiny. Bobby Zheng, Wells Fargo Investment Institute Investment Strategy Analyst, explains what investors need to know about cryptocurrency and distributed ledger technology. 

Transcript: What do investors need to know about cryptocurrency and distributed ledger technology?

There is a lot of media excitement about Bitcoin, but did you know that there are more than 1,000 different types of cryptocurrencies? With so much interest in the largest of these cryptocurrencies, it’s easy to overlook the benefits that the underlying distributed ledger technology can offer. So what do investors need to know about these emerging technologies?

Let’s start with cryptocurrencies. Cryptocurrencies, such as Bitcoin and Ethereum, are digital assets that can be used as a medium of exchange or as a store of value. They typically reside on peer-to-peer networks. Peer-to-peer transactions are verified directly by a broad network of users and are logged in an open digital ledger secured by cryptographic methods.

Cryptocurrencies are legal in most of the world’s major economies. However, investors should be aware of the security, transaction, and regulatory risks of digital assets, in addition to their volatile market price movements.

In terms of security risk, ownership of digital currencies can only be verified with possession of a randomly generated digital signature known as a “private key.” You can store a “private key” online using a digital wallet, or offline on a hard-drive or a piece of paper. Both online and offline methods are subject to security breaches, and stolen cryptocurrencies are extremely hard to recover.

That brings us to transaction risk.

Users of the peer-to-peer network on which these cryptocurrencies reside are either anonymous or pseudonymous, making counter-party risk hard to evaluate. Confirmed transactions without a facilitator are, essentially, irreversible.

Additionally, since the cryptocurrency market has been in existence for less than a decade, comprehensive regulations and policies have yet to be established. Government entities may control, restrict, or ban the use and sale of any cryptocurrency without advanced notice.

Distributed ledgers are data records, such as the transaction history of a cryptocurrency that is shared and synchronized across a large network. Blockchain is an example of a distributed ledger protocol that is widely accepted, but it is not the only one.

Today, most payment transactions are facilitated by entities such as banks, credit card companies, and other payment vendors. In contrast, cryptocurrency transactions are recorded on a peer-to-peer decentralized network without an intermediary. The perceived benefits include faster transaction processing time, transparent and traceable historical records, and broad connectivity without the geographical limitations that traditional facilitators can face.

Currently, distributed ledger technology is under development in financial services, logistics, and health care industries with the aim of improving operational efficiency.

Cryptocurrency is in its early stages of development. There are still numerous technical difficulties to overcome and many of its uses have yet to be fully tested. The cryptocurrency market has been the subject of investor excitement and speculation, and, more recently, intensifying regulatory scrutiny. This has led to significant volatility in their market prices. We think investors need to be cautious given the potential risks of this emerging technology. 

While distributed ledger technology, including Blockchain, appears promising, we do not expect these technologies to have a sizable impact on corporate earnings in the near term. The initial development phase and more widespread application is likely to take time—perhaps more time than many market participants will be willing to endure.

As such, we continue to caution investors to expect the prices of cryptocurrencies to remain volatile. One of the primary risks we see for cryptocurrencies is that there is currently little or inconsistent international regulation surrounding the technology. Furthermore, these currencies may be prove vulnerable to third party product defects, cyber security vulnerabilities, fraud and manipulation.


Bitcoin (or blockchain technology) may be hacked despite its decentralized nature.  Operational glitches or malware also can impact the peer-to-peer network.  The peer-to-peer design of cryptocurrency provides anonymity for the participating parties but also increases the risk of fraudulent activity.  The nature of blockchain technology and the absence of regulatory oversight can create an environment that hinders investigations since many transactions are irreversible.

The rapid development of cryptocurrencies and blockchain-based technology may leave regulatory bodies and market participants behind in their understanding of the technology and associated risks.  Valuation risks, together with the potential for unpredictable regulations and a lack of investor protection, can outweigh any benefits of holding cryptocurrencies like Bitcoin as an asset.

General Disclosures

The opinions expressed reflect the judgment of the speaker as of the recording date and are subject to change without notice. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results. Additional information is available upon request.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor.  This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. 

© 2018 Wells Fargo Investment Institute. All rights reserved. CAR-0118-05301