The Expert Opinion
June 8, 2022
This week, The 'Expert Opinion' Takes A Deep Dive Into:
We have never been advocates of crypto. We aren’t saying it isn’t a good investment, but we would absolutely say that we don’t know. We tend to be interested in stocks that have a value, things we can quantify. Even if it’s a loose link to corporate earnings, at least we can put a high and low value on it.
Crypto is a mystery to us. We like the idea of decentralised currency, but the workings of it have a long way to go and what really seems to be going on is mass herd speculation. At one point, all Bitcoin could do was go up. People told other people and soon everyone was joining in.
But if it fails, like all Ponzi schemes, it’s the last ones in that get hurt.
Recently we’ve been speculating as to whether it really is a currency; or whether it is now just another inflated tech stock?
It’s reason for being, is as a currency, but what you can buy with it, is very limited. Also, what is the value of the currency based on? What makes it go up and down?
There are lots of speculators guessing at the answer to this, but the strange thing is, recently it has been moving in a similar manner to tech stocks which makes us think it was the same people inflating both. Buy in, tell the public to buy in, then sell. Pump and dump.
Assets with no intrinsic value are worth whatever the next guy will pay for it. That’s fine, until the next guy doesn’t want it, or in the worst-case scenario, there isn’t a next guy. This is probably now too big for this to happen, but the point is, when we specialise in stocks, why would we buy one that doesn’t earn anything.
We wrote a while ago that tech stocks had lost all sense of value. Many are now saying the value is back, and in some cases, we would agree but to get there, some have dropped more than 50%. That is a very big fall. Tesla lost $126 billion in market cap in a single day last month. Netflix lost $54 billion in a day. These are big moves, and now MAYBE, they are worth looking at.
For us, Bitcoin is very similar, only we still couldn’t say if it is good value or what it might one day be worth. For this reason, we don’t have it on our platform (yet).
But we are always keen to learn, so we thought it would be good to get the opinions of others, who might know what they’re talking about:
“Most finance pros are divided on Bitcoin’s usefulness, value, legality, and whether it’s a currency or commodity or something else. But one thing we can all agree on is, while it’s much safer (and cheaper!) for a merchant to receive a payment in Bitcoin over credit card, only very few merchants in the world accept it, which is keeping the awareness, price, and usefulness of Bitcoin low. So, until accepting Bitcoin becomes ubiquitous, where purchasers and vendors won’t ever need to exchange it for fiat currency because they can spend it in most places, Bitcoin users need to continually exchange their coins for $USD or look for services to make spending coins as easy as swiping a credit card.”
Former CMO of cryptocurrency exchange Crypto.St.
“The Bitcoin protocol has immense intrinsic value as a self-regulating frictionless payment network affordable to almost anyone. Here is a technology that allows anyone to send any amount of money to anyone else in the world at virtually no cost with nothing more than an Internet connection or smart phone. Bitcoin, like the Internet, is one of those innovations that can break down barriers; information barriers in the case of the Internet, and financial barriers with Bitcoin.”
Dan Roseman, Coinality.com
“Through rose-tinted glasses, Bitcoin can do no wrong. It is a currency that is free of central bank control, is decentralized, and it has proven that it can serve as a store of value for people who lose trust in their national currency (Greece, for example). However, the supply of every currency is controlled by some function, and in the case of the Bitcoin it is through the process known as “mining.”
In layman’s terms, Bitcoin mining is the only way to introduce new currency to the marketplace, and it is performed by “miners” who use expensive software to solve math problems in exchange for the currency.
While the sheer difficulty of mining assures Bitcoin users that there won’t ever be a massive supply shock in the digital market, the way that Bitcoins are created causes one enormous problem. Primarily, it incentivizes miners to hoard the currency upon receiving it.
This is one of the main causes of Bitcoin’s price volatility (it’s estimated that up to 25% of Bitcoins mined have never even entered the marketplace). The only way to alleviate this issue is to mandate that miners have to exchange all newly-mined Bitcoins for another currency of their choice. Otherwise, volatility will end up killing this currency’s potential, and a group of Bitcoin miners will control the supply. Is that really any better than a central bank?”
Editor, Insider Monkey
“As a fee-only financial planner, I have a fiduciary responsibility to my clients to only recommend investments that are suitable to their specific investment plan and risk profile. While my clients’ risk tolerances run the gamut from conservative to aggressive, Bitcoin, with its short history, volatile price movements, and lack of intrinsic value is hard to ever recommend as an investment. While one could make the case for an investment in currencies (due to their diversification benefits), a purchase of Bitcoin would be pure speculation, akin to penny stocks.
As an investment, I won’t touch it. But as a concept, I love it! A global currency would eliminate the need for exchanges making global commerce easier by increasing efficiency, reducing transaction costs, and ultimately reducing costs for the end consumer. Even better, Bitcoin is not controlled by a central bank, thereby reducing the risk of manipulation from authoritarian governments. And with a limited supply, inflation should be kept at a minimum.
I wish Bitcoin all the best of luck, but I’m afraid it may never make it into one of our investment portfolios.”
CFA, Phillip James Financial
“Currently, Bitcoin is a virtual and decentralized currency used to trade for goods and services, not backed by any government, company, or organization. It’s truly a global unregulated currency that is not taxed at any level. Multiple attempts have been made to harness in virtual currency, but much like the government attempts to regulate the Internet, the regulations so far have failed. At some point, Bitcoins will likely need to be regulated to have lasting power. The questions will be who and how. Currently the Senate Homeland Security and Government Affairs Committee is investigating Bitcoins and other virtual currencies.
FinCEN has issued guidance concerting virtual currencies and their administrators and exchanges that subject these companies to the same regulatory responsibilities as other financial institutions. States are also involved. The NY Dept. of Financial Services recently sent numerous subpoenas to Bitcoin businesses requesting information regarding their policies to prevent money laundering and ensuring consumer protections.”
Partner, KENNYHERTZ PERRY LLC
“Think of the implications of a currency that has no borders, bars no one from entry, and is not controlled by a government. At a time when we’re seeing just how much power is abused… I think the world is ready for a currency that is decentralized and controlled by the people. But yes, Bitcoin still has a journey ahead of it. It needs greater adoption, and more simplicity to appeal to the general public. But then again, the general public should be more informed anyway. Monetary decisions affect them more than the people that make the decisions.”
Co-founder of BitcoinWebHosting.net
“Bitcoin is an interesting idea, but I think their mechanism for regulating the currency supply is fundamentally flawed. Because the Bitcoin supply doesn’t increase in proportion to the growth or use of Bitcoins, there is a deflationary effect, creating an incentive for people to hoard Bitcoins rather than spend them. Gresham’s Law in economics suggests that for a complementary currency to be successful, it needs to have an inflationary effect that exceeds inflation in the national currency.”
Community Currency Developer, Founder of Merit Exchange LLC
“At this point, Bitcoin is neither a legitimate form of currency nor an investment. Until it gains widespread acceptance and price stability, it will never be a mainstream method of payment. And from an investing perspective, Bitcoin’s uncertain future and the lack of any meaningful fundamental metrics make it a speculation at best, and gambling at worst.”
Founder of DreamsCashTrue.com
“The biggest challenges that Bitcoin currently faces are flow of funds, a lack of market makers, and outsized exchange rate risk. It’s nearly impossible to move USD in and out of the largest trading platform (MtGox) and, as a result, there are very few significant market makers participating in the exchange.
Absent reliable providers of a liquid marketplace, volatility will remain high. This presents major difficulties for businesses and individuals that might otherwise accept Bitcoin as payment for goods and service in forecasting Bitcoin exchange rate risk.
Bitcoin can’t be a viable long-term currency unless, and until, it is more broadly accepted as an exchange medium for items of real value (i.e. these goods and services). These challenges are interconnected, and the current regulatory assault is the single most important aggravating factor to these circumstances.”
Managing Director, Maroon Capital Group
“The Bitcoin industry has been rife with scams and thefts, so it’s hard to believe that the currency will be able to sustain itself over the long term. Even though there are some who claim Bitcoins are the currency of the future, I just don’t see it. It has also been linked to drug trafficking and illegal gambling. I see it as a fad and nothing more, and as more people lose real money because of the legal issues surrounding Bitcoin, I eventually see it fading from existence.”
Founder and CEO of Money Crashers Personal Finance
Bitcoin really needs to be broken down into two areas: viability as a currency and as a trading vehicle.
As a viable currency, it’s exciting, but frightening.
Taking the power away from governments and central banks is an unknown. As much as printing money has quite literally inflated problems recently, it has also got us out of a couple of tight scrapes.
Who holds the power? Or is the very point that nobody does? If that’s the case, then we’ve seen enough films to know that there will be an evil character somewhere pulling the strings. It won’t run itself.
It has already opened the doors to privacy coins which can be used to hide transactions. This creates an ideal environment for illegal activities, tax evasion, and much more!
Many companies have been hacked and held to ransom for coins already. This will only get worse if transactions can’t be traced.
It’s important to understand each of the different cryptocurrency or token, as each is constructed differently. Bitcoin has a higher degree of transparency, security, and scarcity than most cryptos, and is definitely winning the battle, but it still scares us.
As a trading vehicle, it is a number that goes up and down with immense volatility. This means we can trade it and make money. However, the thing stopping us doing so, is that what if it one day opened up at zero or just didn’t open at all? A total collapse.
We don’t think that will happen, but even a drop of 50% for no reason is terrifying, and that’s already happened.
Many investors who are trading it, aren’t professional traders. They have been sucked in by these new ‘learn how to trade’ courses online. I’m afraid this is another scam to be weary of.
‘Those who can, do, those who can’t, teach’ is a far more apt saying to the world of trading than it is to education. George Bernard Shaw might not have been aware of crypto trading in his time, but this saying has never been more relevant.
A staggering figure that backs up our retail amateur trading theory is that in the past 24 hours alone, over 74,592 cryptocurrency traders were liquidated, with the total liquidations coming in at $218.63 million, as of the time of writing.
That is just in the last 24 hours. Investors are losing everything because they want to win big. If you chase it, you will fail. Trading is a game of patience and control. It’s no different from being unable to walk away from a casino; if you keep trading without the appropriate experience, you are handing your money to the house.
We won’t trade crypto until it is better recognised, regulated and more stable. This might be soon, but it’s not yet, and recent moves have only validated our thoughts. If you’re in it, good luck, if you’re not, but are considering it, just have a look at the returns on The Portfolio Platform.
We could be the investment you’re looking for, but without the potential to be worth nothing.
Enjoy the rest of the week, and if you'd like to schedule in a call, you can do so by clicking here.
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