(Not) Investing in Crypto

2021 version of being a financial advisor. People used to ask me for stock tips. Now they ask what I think about investing in crypto.

Crypto

I don’t recommend it.

Here’s why:

  1. Crypto is speculative and could go to zero
  2. Not enough people investing in it understand it and have a reasonable basis for assessing where crypto currencies are heading
  3. The Regulators and governments could shut the space down. Check out SEC Chair Gary Gensler’s recent remarks.
  4. You could lose your crypto password (only half-joking)
  5. I don’t see what purpose it serves. Why do we need crypto (besides allowing terrorists, drug cartels, and divorcing spouses to hide assets)? What about its current form cannot be undermined by sovereign digital currencies or something similar?
  6. Price matters in investing. You need to have a basis for determining what something is worth so you know when to buy and sell. You can’t do that with crypto. The most sophisticated analysis I’ve seen is “it’s going up” and so I have to be involved.

No, I don’t.

Speculative, hard to understand, risk of permanent loss, can’t be priced – sounds great.

While I’m open to learning more and having my mind changed, that process isn’t off to a great start.

I attended a presentation recently given to the top financial advisors in the country by a former top advisor now crypto-evangelist. Thirty minutes of talking his own book and pitching us to add crypto to our client portfolios. 

If that was the best case for it, I’d hate to see the case against it.

The Crypto Presentation

Touting it as the “best investment opportunity since the invention of the internet”, we were told that you couldn’t really apply traditional economic modeling to it, or a pricing discipline. It’s something you need to invest in because more and more people will use it and the price will go up. FOMO at its worst.

When trying to answer the “what purpose it serves” problem, we were told that digital assets like Bitcoin will solve world poverty by democratizing the financial system and providing access to billions who currently lack it. This is one of the dumbest things I have ever heard and became a running joke the rest of the conference. People who cannot afford internet, wifi, bank accounts are now all of a sudden going to be wheeling and dealing Bitcoin and using it to buy groceries?

From there we went to how much of it to own.

Mind you, we have the best investment opportunity since the internet, it has to go up, and will solve world poverty, so we must be talking a pretty healthy stake in portfolios, right?

Nope.

A whopping 1% between all your different crypto exposure. This was starting to feel like one of those dismal Shark Tank presentations where an entrepreneur tells the sharks that the market he or she is trying to crack is a $10 billion market, and if they could get 1%…well, if you watch the show you know how those go.

So, still out for now. But doing my research and will share what I find along the way.


Suggested Further Reads

6 Things I’m Not Worried About Financially – There’s plenty to be worried about, so don’t add unnecessary financial concerns to the list. Includes latest thoughts on a market crash, investing in crypto, the deficit, Social Security running out of money and more.

Investment Mistakes to Avoid