Pages Menu

Posted by on Oct 25, 2017 in ETF Strategist, Featured

Retire On Less Than One Bitcoin A Month!

Retire On Less Than One Bitcoin A Month!

By Roger Nusbaum, AdvisorShares ETF Strategist

For the last month or so I’ve been geeking out on cryptocurrencies and blockchain. I’ve done a lot of reading and listening (podcasts) to try to learn more. I’ve become convinced that blockchain is the real deal in terms of how the financial system evolves and that the concept of cryptocurrencies is also the real deal. For many years I’ve said that the actual internet, not the stocks from the 1990’s but the promise of what it could become has wildly exceeded what was expected back then.

That is where I think we are with blockchain and the cryptocurrencies. I will be as clear as I can on this one point which is that I have no idea whether any of the now 100 (per one podcast) existing crypto currencies will be around in ten years or some other time frame but I believe that there will be cryptocurrencies in use in ten years, or whatever, from now. More importantly there are some financial institutions trying to learn how to do transactions through blockchain and I believe this can only increase based on what appears to be superior security and authentication through blockchain. Fidelity is very involved in a very public way in the space because it is “inspired by the future possibilities of blockchain technologies.”

If you look, you’ll see that over $5 trillion dollars trades in the currency market every day. The highest estimate I have seen for the total value of all the cryptocurrencies is $145 billion. It is now so small that it might as well not exist. Essentially no one owns cryptocurrencies. One possibility is they become a thing, a functional medium of exchange, or they don’t or any variation in between but the potential here is trillions in activity even if that means that none of the current cryptocurrencies are around in five years. The blockchain seems to have a different potential, accommodating both cryptocurrencies and transactions in regular/fiat currencies.

I am still working on trying learn about this so there is plenty I don’t know/understand and still hope to learn. As one podcast said, it is so early that there isn’t fragmented information about this, there is essentially no information.

Ben Carlson had a post last week about this and drew some similar conclusions but added one other point related to cryptocurrencies catching an asset allocation bid during the next downturn for the equity market. I am less constructive on this aspect. My thought is that this is either a transformative technology or it isn’t as opposed to another equity market diversifier like managed futures or merger arbitrage. The future is far less bright as a diversifier.

The investment implications here are far from clear. There are exchanges where cryptocurrencies trade and depending on the circumstance a broker may also be needed (some exchanges allow for buying cryptocurrencies in fiat currency and some don’t). The Winklevoss twin’s attempts at launching a Bitcoin ETF have been well chronicled in the media, a couple of US based ETF providers have filed and then stepped back, there is a provider in Canada looking to move forward too. If an exchange traded product owns actual Bitcoin, that could be problematic for all sorts of operational reasons which might be way after so many years there is still no ETF.

There is the possibility of a futures based Bitcoin ETF. The concern I would have is whether they might be like products that track VIX futures. VIX futures price to guess where VIX will be when the contract expires and so don’t track the spot price. How interested would you be in a Bitcoin tracker that doesn’t track Bitcoin? There is a company that offers a tradeable trust for Bitcoin that could be thought of as being similar to a closed end fund in that it can trade at a premium or discount to the NAVs.

There are maybe a dozen or so individual stocks that one way or another relate to blockchain technology but most of them are so small they are like nano cap stocks. I took a very small flier on one of the stocks with the mindset, and this is important, it could just as easily go up 5000% as go down 100%. If it wipes out, the loss would have no impact and if it goes up a ton, at some point it becomes meaningful for me. I am not going to disclose the name as nothing good would come from “promoting” a nano cap stock. I don’t feel I understand this well enough to buy it for clients, also it is a form of speculation that isn’t suitable for most clients. I learned a little, bought the shares, have learned more but have a ways to go.

I’ll close this out the way it started, while I believe there is something to cryptocurrencies and even more to blockchain, the players for both could change entirely in the next five or ten years but I believe it is worth learning about, it costs nothing to learn. If you want to dabble, go small.

The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.