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Zoomer Magazine has just published a column by me on investing in cryptocurrencies. Contained in the June/July 2022 issue, the headline is The Crypto Conundrum.
There is an online version but it is not yet available: when it is, I will update with a clickable link. Alternatively, you can subscribe to the print edition and/or the digital edition, by clicking here.
As the adjacent artwork shows, “this notoriously volatile investment is not for the faint of heart” and I therefore “advise caution.”
As Murphy’s Law would have it, between the time the article was written and edited, crypto crashed, with Bitcoin plunging below US$30,000. In fact, this weekend was a brutal correction for crypto in general: see this Reuters report on Bitcoin touching an 18-month low of US$23,476 over the weekend.
The article does of course stress the volatility of this asset class and it goes without saying that if you’re a long-term believer in crypto — a so-called HODLer (for Hold On for Dear Life) — then you’re much better off investing in Bitcoin closer to $30,000 than the near $60,000 it reached late in 2021.
The article arose when a Zoomer editor was intrigued by a MoneySense column I wrote early in 2021 about my own personal experience with investing in Cryptos. You can find it by clicking on this highlighted headline: How to invest in Cryptocurrencies(without losing your shirt.
The gist of both articles is that I suggest investors restrict themselves initially to just Bitcoin and Ethereum, which I regard as the “Big 2” of crypto. I also suggest using ETFs in registered portfolios, and taking profits if and when they materialize: by selling half on any double, you can do what Mad Money’s Jim Cramer calls “playing with the house’s money.”
The other guideline I offer is to restrict total crypto investments to 1 or 2% of your total wealth: a range recommended by billionaires like Paul Tudor Jones or Stanley Druckenmiller.
Start small and try to play with the house’s money as soon as you can
The article notes that as reported here, as of January 2022, Fidelity has 2% in its balanced and 3% in its more aggressive asset allocation ETFs. FBAL has 59% stocks, 39% bonds, and 2% crypto while its growthier FGRO is 82% stocks, 15% bonds and 3% crypto. These seem to me prudent allocations for investors wanting a sliver of crypto.
On the other hand, the article also points to higher allocations to crypto at Northland Wealth Management. Northland’s bitcoin asset allocation primer lists three risks: investment, operational and macro. It warns bitcoin is almost three times more volatile than other asset classes, like stocks or gold. But bitcoin’s low correlation to those assets means a little goes a long way to lower overall portfolio risk. If bitcoin soars while everything else slumps, that may reduce total risk. “Even a 5% bitcoin allocation taken at the expense of equities can result in a more balanced portfolio,” Northland says. “At a 5% weight, even if bitcoin were to go to zero, the most it would impact our portfolio is 5%. The upside is unconstrained however.”
The easy way for newcomers is to use crypto ETFs, or Exchanged-traded Funds. Canada was the first country to develop ETFs, as well as the first Bitcoin and Ether ETFs. You can buy the Purpose Bitcoin ETF and Ether ETF at any brokerage and hold them in RRSPs or TFSAs, as I have done.
