Perhaps unsurprisingly, State Street doesn't hold cryptocurrency positions within any of its funds, according to State Street's Lori Heinel, executive vice president and deputy global chief investment officer.

"At this moment, we don't believe there's enough history in the trade of these currencies to put them on the same footing with how we would assess other currencies.

"The other thing, it strikes me ... that there's no backing, there's no Fed or taxing power or anything else sitting behind it. You could make the same argument for gold, but all the central bankers backed gold ... they're still active buyers and sellers. But it's hard to see where a Bitcoin or any of the other cryptocurrencies really get their value from, other than as a sort of barter economy," Heinel says.

Echoing these views, State Street's senior managing director, head of investments, Asia Pacific, Kevin Andersen, also highlighted China's regulatory action to cool domestic cryptocurrency investment as an important indicator.

"One of the major forces for interest in bitcoin would appear to historically have been China ... however we've seen a significant regulatory clampdown recently in cryptocurrency and Bitcoin, because that's not viewed as a positive for the future growth of China," he says.

"I think we shouldn't underestimate the impact of top-down regulation as it relates to cryptocurrencies. In China, which is one of the major markets where we've seen a clampdown, we're in an evolving state, and I think that is going to be an important point to consider in future as we see cryptocurrencies emerge into the wild in a more prevalent fashion."

Where's the fear?

They also noted the relative flatness of the Volatility Index--a weighted measure of the volatility of a basket of S&P 500 stock options. This low volatility is somewhat surprising given the heightened levels of geopolitical uncertainty across Europe (Brexit), Asia (North Korean military posturing) and the US (the Trump administration).

"The best way I think we can rationalise the low volatility across many asset classes, but the one where you've had the most is in currencies, and I think it's because a lot of the central bankers have been so transparent, consistent and measured," State Street's Heinel says.

"So, in some respects, what the market's telling us is that they believe that these policymakers are going to do what they say ... and that tail risk is high, so that scares people, because everybody will be doing fine, until they aren't."

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Glenn Freeman is a senior editor at Morningstar.

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