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Sound Advice: August 11, 2021

Cryptocurrencies, Bitcoins, and the like

The most talked-about quote at the late July AICPA ENGAGE conference in Las Vegas came when keynote speaker David Kelly, Chief Global Strategist of J.P. Morgan, was asked about bitcoin.  He said he believes that bitcoin “is more of a cult than a currency.”

Kelly went on to say that real currencies are transparent and stable.  Bitcoin is neither of those.”  He also pointed out that there’s some additional risk to crypto holdings that aren’t related to the markets.  “Some 22% of the total bitcoins are out of circulation, because people either lost the passwords to their digital wallets or died and the password was lost,” he said.  This, of course, is in addition to the hacking that the crypto exchanges are constantly reporting.  Plus, there is no help desk you can call to get your money back.

The more pressing question is whether investors should invest in crypto as a diversifier, buy crypto at all or just forget about it.  Sensible investors are best advised to avoid asset classes such as these with no defined history of expected returns.  The best route to reaching their goals is to view the task as a marathon, not a sprint-like, get-rich-quick scheme.

Warren Buffett, the best-known U.S. investor, on Bitcoin: 

“Cryptocurrencies basically have no value and they don’t produce anything. They can’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem.  In terms of value: zero.”

February 2020

Charlie Munger, Buffett’s partner, and also a well-known investor:

“I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out of your extra billions of dollars to somebody who just invented a new financial product out of thin air.

I think I should say modestly that the whole damn development is disgusting and contrary to the interests of civilization.

It’s really a kind of artificial substitute for gold.  And since I never buy any gold, I never buy any bitcoin.  Bitcoin reminds me of what Oscar Wilde said about fox hunting.  He said it was the pursuit of the uneatable by the unspeakable.”

May 2021

There is, of course, another view as was obvious from Bitcoin 2021, a June gathering of more than 10,000 people in Miami to worship at the altar of cryptocurrencies.  Here’s a quote from Cameron Winklevoss, one of the social network pioneers: 

“If you own Bitcoin today, you will be a millionaire in the future. For sure. Congratulations.”

June 2021

Go figure!

N. Russell Wayne, CFP® 

Any questions?  Please contact me at nrwayne@soundasset.com.

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