Does a Cryptocurrency Make Sense for your Portfolio?

by Darwin on August 14, 2018

In case you were ignoring social media and the financial news for the past few years, you will be well aware of the massive runup and subsequent volatility of various cryptocurrencies. It’s been an exciting time like none other in the history of investing and financial instruments for everyday investors.  Without getting into the full history of origin and the numerous types of currencies, let’s just talk about whether it makes sense to invest at all.
Bitcoin or Bust?
First off, Bitcoin was the first major crypto to take off and made many people millionaires – if they didn’t toss out their hard drives or wallet passwords.  Over time, more currencies surfaced, and as of 2018, it seems like there’s a new coin offering coming out every week.  I have to be honest and say that this kind of reminds me of my baseball card collecting days in the 80s.  The initial Topps rookie cards were worth plenty of money, Fleer too. And then we had Donruss, Upper Deck and a flood of other cards come onto the market and it crashed the whole baseball card market.  It’s a supply/demand thing of course, but also some very strong parallels to “lost assets”.  In the old days, baseball cards would get bent or tossed out when mom cleaned out the bedroom.  But as kids started to hear about the six figure rookie cards from the early 1900s, they started keeping all their cards in protected cases, even individually for the expensive ones.  This had the effect of solidifying the supply and cutting off the process of permanent loss from the asset base. Well, similar to bitcoin, it is estimated that at least a few million bitcoin will never see the light of day again because people threw out old hard drives (one guy is even petitioning to search his local landfill to find his old computer with over a million dollars in bitcoin on it) and others have forgetten the password to unlock the wallet their bitcoins are stored on.  After enough of these stories have flooded the internet people both took special care to safeguard their new assets, and also started using brokers to do their purchasing and storage for them instead of trying to do it themselves.  This has somewhat democratized the purcashe of cryptos and broadened the market.  So, I think we’re seeing a similar effect.
While different and newer cryptocurrencies do offer some benefits that Bitcoin may not, Bitcoin will always be the original, cannot be replaced or duplicated, has limited supply as a finite resource, and could potentially be like that old Babe Ruth rookie card that you wished you didn’t throw out.
Room in the Portfolio?
Most financial advisors would not recommend storing a large amount of your assets in cryptos.  Neither would I.  However, you do have to wonder how long this 10+ year bull market can continue.  Does it make sense to have other completely non-correlated assets to fall back on and potentially buy back into the market in the event of a crash?  Maybe! And if it does, cryptocurrencies could be one such vehicle.

{ 0 comments… add one now }

Leave a Comment

Previous post:

Next post: