Tag Archives: Ethereum

The case for caution with cryptocurrencies

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Vanguard Group

Special to the Financial Independence Hub

Republished with permission of Vanguard Canada

The tremendous surge in the price of cryptocurrencies has attracted the attention of many investors, who may be considering the digital currency as a potential substitute for traditional asset classes in diversified portfolios. But Roger Aliaga-Díaz, chief economist for the Americas and head of portfolio construction at Vanguard, cautioned against speculating in cryptocurrencies, which are largely unregulated and accompanied by considerable risks.

“Cryptocurrency prices depend mostly on speculation about their adoption and use,” Mr. Aliaga-Díaz said. “And that speculation creates volatility that, ironically, undermines their potential use as either a currency or asset class in an investment strategy.”

What is a cryptocurrency?

A cryptocurrency is a digital or virtual means of exchange. There are more than 6,700 cryptocurrencies today; among the better known are Bitcoin, Dogecoin, Ethereum, XRP, Tether, and Litecoin.

Unlike traditional currencies, virtual currencies currently operate without central authorities or banks, and they are not backed by any government. Cryptocurrencies are stored in “digital wallets” on a holder’s computer or phone, or in the cloud. The wallet serves as a virtual bank account that enables holders to pay for goods and services or simply store the currency in hopes of an increase in value.

Cryptocurrencies defy neat categorization. They are not a traditional currency, commodity, or asset class, though they share characteristics of each.

There are several reasons why cryptocurrencies are not a traditional currency. Although some merchants have begun to allow cryptocurrency payments, they are generally not accepted as a medium of payment. Cryptocurrencies also are not used as a unit of account because prices, trade invoicing, and contracts are not quoted in digital currency units. Finally, cryptocurrencies’ ability to serve as a store of value—a safe instrument to preserve the value of people’s financial wealth—is severely limited by their notorious volatility.

“The fact that cryptocurrencies are not issued by a central bank is actually the very reason why they can’t achieve the quality of other well-accepted currencies,” Mr. Aliaga-Díaz explained. “The role of a central bank is precisely to preserve the value of the currency by keeping inflation under control. That’s why prices are more predictable under Federal Reserve management of the U.S. dollar money supply.”

Cryptocurrencies share some characteristics of commodities. For example, they can be bought and sold in cash markets or via derivatives. But Mr. Aliaga-Díaz said they are not commodities because they are not physical raw materials.

No substitute for stock and bonds

Some wonder whether cryptocurrencies can be used in strategic portfolios as substitutes for stocks and bonds. “But unlike traditional asset classes, cryptocurrencies lack intrinsic economic value and generate no cash flows, such as interest payments or dividends, which can explain their prices,” Mr. Aliaga-Díaz said.

Mr. Aliaga-Díaz pointed out that as with currencies and spot commodities, such as gold, there is no risk premium expected with cryptocurrencies as compensation for bearing the risk of their price movements. “Because cryptos represent uncompensated risk to the portfolio, they are not a good substitute for stocks and bonds in a long-term portfolio,” he said.

Some investors may be willing to bet on sustained crypto price increases based on the belief that crypto demand will always outpace its supply. And though there might be some valid reasons around projected demand and usage to make a compelling case for a persistent supply shortage that can sustain increasing prices, Mr. Aliaga-Díaz noted, the supply of cryptos has exploded over time, and there is no reason to believe that supply can’t keep up with demand.

“The biggest risk for all investors would be to assume that demand growth will continue just because their prices have recently gone up,” he said. “That’s speculation, not investment.”

Other risks to keep in mind

Despite all the recent attention devoted to cryptocurrencies, Mr. Aliaga-Diaz cautioned that there are a number of additional risks associated with digital currencies, including: Continue Reading…

Purpose cleared to launch world’s first Ether ETF

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Investing in Bitcoin is a no-brainer

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By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

In the Fall of 2020 I initiated a position in bitcoin by way of a closed end fund from 3iQ Digital Asset Management. The initial purchase created a 2.5% portfolio weighting. The explosive price increase quickly took me above my target of a 5% portfolio weighting. I am embracing bitcoin as a core portfolio asset. It is one of the portfolio risk managers. This post will demonstrate why investing in bitcoin is a no-brainer.

To my eye, bitcoin is digital gold. It is a store of value. What makes bitcoin a store of value is due to the fact that it is a currency (digital) and it is scarce. There are only 18,500,000 million coins in circulation (it’s less than that as a few million coins were lost due to owners losing their keys) and the total creation of bitcoin will be capped at 21,000,000 coins. It is the opposite of inflationary.

It is scarce and it will be finite in supply.

Many will say that it is “the hardest currency on earth.”

On the flipside, central banks around the world are printing and borrowing monies at a historic rate. Those fiat currencies will be devalued. This also creates the threat of inflation.

What is bitcoin?

For the go-to post that will help you on your journey to understanding bitcoin, please have a read of should you invest in cryptocurrency?

That post was the result of hundreds of hours of research. In the process I consulted with individuals and firms that had put in thousands of hours of research and due diligence.

One such individual is Arthur Salzer, the CEO of Northland Wealth Management. Northland was the recent winner in North America in the category of Best Family Office Under $2 billion.

A family office firm will manage and protect the wealth of more affluent families. They will typically embrace the same style and financial management techniques employed by pension funds, sovereign wealth funds and endowments such as Yale and Harvard. ​

Protect and grow assets over generations

Given that generational goal I was more than surprised to know that Northland was using bitcoin as a core portfolio asset even more than two years ago. They were early adopters to say the least. And that confidence in bitcoin as a portfolio asset was the result of extensive due diligence.

Clients have benefitted tremendously.

According to a new generation in the financial industry, unless something gets in the way, crypto is on the path to even greater credibility and increased adoption. We’re at the foothills of this long trend of financialization and institutional adoption.

I asked Arthur Salzer of Northland Wealth Management to describe his extensive bitcoin educational journey, and why he has the confidence to use bitcoin as a portfolio asset for Northland family clients.

From Arthur …

The bitcoin journey

Of all my 30 years of professional experience, researching and investing in asset classes such as real estate, stocks, distressed debt, hedge funds and private equity, my journey and due diligence into Bitcoin has been the most interesting. What I discovered was that there are many facets to Bitcoin – as money, as an asset class, as a technology, as a digital payment system, as a store of value, as speech, a belief system, and potentially as a new form of life. Bitcoin are all of these and so much more.

My first exposure bitcoin was in May 2017 and I had just finished a TV interview at the SALT Conference (the world’s largest hedge fund conference) held at the Bellagio in Las Vegas. Two of the staff approached me and asked, “What do you think about bitcoin? We are thinking about buying some.” At the time, the price of BTC was in the US$2,000 range, but there were some eerie parallels with the dot-com bubble around the turn of the century.

I told them, “While I have not invested any of my own or client capital into this sector, some of my friends who have been in since the $100 range, have been selling on a regular basis to reduce the position size recently. I can’t give you more advice than that.” As an investor it’s imperative that you do your own research and as a professional investor, to only comment on what you really know. And at that point in time, I knew I didn’t know about bitcoin.

The turning point

Fast forward to 2021, (and thousands of hours or research later) despite bitcoin’s headline-worthy returns and volatility, many investors still don’t understand it, especially when it comes to valuing it. Many in the financial industry, including Warren Buffett, focus on intrinsic value: an economic good produces cash flow or has overt utility such as stocks, bonds, real estate and consumable commodities. But bitcoin has monetary value, which exists despite an economic good not having intrinsic value. Monetary value usually arises from objects that are scarce, durable and relatively easy to divide.

Since the dawn of civilization, societies have used rare seashells, wampum, glass beads and stones as money or a form of record keeping. Gold is an ideal example since it can be made into jewelry, coins and bars, but bitcoin is unique in today’s digital world since it is scarce, durable, has strong privacy characteristics.

Bitcoin momentum and adoption

Elsewhere, Fidelity Digital Assets, a subsidiary of the namesake giant U.S.-based asset manager that oversees and manages in excess of US $5 trillion in assets, is offering a trading and custody platform for bitcoin. It has also had bitcoin mining operations since 2014, and the Fidelity Center for Applied Technology is a customer of Victoria-based Blockstream, which mines bitcoin in Quebec and Georgia. Not to be outdone, Microsoft is taking advantage of the Bitcoin system’s trust-minimized features and security and building a decentralized identity platform aptly named Identity Overlay Network. Continue Reading…

MoneySense: 2 articles on how Canadians can play the cryptocurrency mania

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MoneySense.ca has just published two online articles on investing in Bitcoin and other cryptocurrencies. One is by me. Click on highlighted headline for full column: How to invest in Cryptocurrency (without losing your shirt.)

The other is from regular Hub contributor Dale Roberts of Cutthecrapinvesting. His MoneySense piece can be found here: Should you invest in Cryptocurrency?

My piece is the first time I’ve publicly written about crypto, although the Hub has long covered it, both positively and not so positively. Try, for example, this primer published here way back in July 2017.

The MoneySense piece recaps my personal experiments with Bitcoin and Bitcoin funds, as well as Ethereum and Ethereum Funds, going back to the fall of 2020. I sat out the original 2017 boom.

It seems to me that investors should regard this as a new asset class that should probably not exceed a few per cent of a diversified portfolio. Certainly, institutional acceptance of crypto and attention from hedge fund billionaires like Paul Tudor Jones seems to have ignited the new euphoria, buoyed in part over the frustration of minuscule interest rates and inflationary forces unleashed by endless money printing by central banks in the US and the rest of the world.

Based on the recommendation of Profit Unlimited’s Paul Mampilly, my first try was to put several thousand dollars into each of the Grayscale Bitcoin Trust [GBTC/OTC] and Grayscale Ethereum Trust  [ETHE/OTC], which I currently hold in a non-registered account.

I soon realized I wanted to hold these experimental positions in registered portfolios (RRSPs and TFSAs) so that the next time I got a double or triple — if indeed they materialized rather than comparable losses — I could book the gains with no immediate tax consequences. I soon discovered the closed-end funds of Toronto-based 3iQ Digital Asset Management:  first I tried The Bitcoin Fund [QBTC/TSX] andThe Ether Fund [QETH.U/TSX], can be held in registered accounts like RRSPs and TFSAs.

My third experiment was when Mampilly started to recommend his readers move from the Ethereum tracking ETHE to actual native ethereal or ETH (which some call Shitcoin, or poor man’s Bitcoin). He suggested buying actual “native” crypto from places like Coinbase and RobinHood, convenient for his mostly American subscribers but less so for Canadians. Continue Reading…

Q&A with MyOwnAdvisor’s Mark Seed on speculating near Retirement

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Mark Seed’s MyOwnAdvisor website has just published a Q&A with Yours Truly. The Hub often republishes Mark’s blogs here (with his permission of course) and this Q&A covers topics like dividend investing, asset allocation ETFs, hybrid strategies using both and even crypocurrencies.

You can find the original blog by clicking here, or you can read the republished version below:

MyOwnAdvisor’s Mark Seed

Mark Seed: “Fun money” is an apt term for monies you can afford to lose. I mean, nobody wants to lose money on purpose of course but there is always an undeniable trade-off when it comes to investing.

Risk and return and related.

Higher risks can signal a higher potential return. Higher risks taken can also signal flat-out failure.

I was curious to hear about how some retirees or semi-retirees invest and keep speculation in their portfolio.

So, I reached out to author, blogger and columnist Jon Chevreau for his thoughts including how much he speculates in his own portfolio, at age 67.

Jon has already contributed to My Own Advisor a few times.

Jon, welcome back to the site to discuss this interesting topic!

Jon Chevreau: Glad to be back Mark.

Mark: In our last post Jon, we talked about low-cost ETF investing, investing in stocks and more in your Victory Lap Retirement book.  

Let’s back up a bit…

What should Canadians consider before Do-It-Yourself (DIY) investing? I mean, it’s not for everyone including those in retirement right?

Hub CFO Jonathan Chevreau

Jon: No, DIY investing is probably not for everyone: some need good advice and like most things in life, you get what you pay for.

If you need a full-service advisor or a fee-based advisor that can add value not just on investments but on tax strategies, estate planning, retirement income, insurance and the like, then paying on the order of 1% a year of assets is not unreasonable. On the other hand, with interest rates so low, the more you can save on the fixed-income portion of a portfolio the better. That applies doubly to retirees, who should have a good percentage of their investments in fixed-income (say 40 to 60% depending on objectives and risk tolerance.) I often tell retired readers that if all they use is a discount brokerage in order to hold a Vanguard or iShares asset allocation ETF, that can be a good compromise: you get the equivalent of near professional stock-picking prowess via indexing, asset allocation and rebalancing all for a very good price; and you could then hire a fee-only financial planner for specific guidance outside that pure investing realm.

(Mark: you can find many of those asset allocation all-in-one ETFs here.)

Mark: Seems wise Jon.

So, given some aspiring retirees might not want to invest entirely alone, what good options might be available to help them out (beyond blogs like yours and mine of course)!? Ha!

Jon: I often direct new or aspiring retirees who are worried about the shift from wealth accumulation to generating regular retirement income to the books by good Canadian authors like Moshe Milevsky, Daryl Diamond and Fred Vettese. Sites like yours and mine probably have reviewed these. There are also several retirement planning software packages that are worth considering; ViviPlan, Cascades and Retirement Navigator, to name three I once reviewed in a Globe & Mail article.

(Mark: you can find many references to those authors and their books below.)

Daryl Diamond – Your Retirement Income Blueprint

Fred Vettese – Retirement Income for Life

Fred Vettese – The Essential Retirement Guide