My name is Thao. Because
I’m a professional financial planner, many friends ask me about cryto.
There has been a lot of speculation and interest in Bitcoin these
days. You may know some people who were able to get rich on the Bitcoins in
their wallets. You never hear about it
from those who lost big on Bitcoin. It’s like gambling. In gambles there are
always the winners and the losers.
So what do I tell my friends?
I tell them that I believe in the future of cryptocurrencies and the
benefits that they can bring. However not all crypto are created the same. In
my opinion, one Bitcoin is as much
of a hedge as 1 share of Tesla or Amazon. The speculative fever is just a
result of today’s extreme monetary policies by global central banks.
Government and banking regulations will not allow digital assets to reach
critical mass needed to challenge fiat currencies. Unlike cash, crypto is not
backed by the US government. Distributed ledger passwords can easily be broken
if quantum computing becomes a reality. Not all of your blockchain information
is private, and also you would need to be mindful of the scammer “miners.” (You
can read more about crypto here: https://www.consumer.ftc.gov/articles/what-know-about-cryptocurrency)
Key thoughts in terms of crypto as an investment vehicle:
- Bitcoin
will not replace Gold’s unique role as a form of portfolio insurance and
tail risk hedge. - Cryptos
are not money. They are not even an asset. These digital
“currencies” are created out of thin air and are nothing more than an
object of speculation. Investors can use bitcoin prices as a gauge
for market speculation and risk appetite, but they should never buy them
as a long-term investment. - I
think crypto prices will crash again like in 2018 since most participants are
retail speculators. Either because of shifting monetary policy or simply
because prices are inflated, so much that marginal buyers are priced out
of the market. You know things are in the bubble and going to burst when
you hear everyone around you talking about it, even your Mr. gardener (no
offense, but you know the idea). To what magnitude, I don’t know. - Today,
reputable financial institutions, such as Goldman Sachs, are beginning to
get involved in the crypto market. The total
portfolio inflow into crypto currencies has escalated to $1.1 billion in
the third quarter of 2020 alone. Could a similar crash trigger systemic
risk to the financial system? Only time will tell.