It seems like every month the stock market is reaching new highs. Stock investors like myself have benefited greatly from the second longest bull run in history. 🙂 But it’s becoming very difficult to find value in traditional asset classes such as stocks, bonds, and real estate. So I’ve been looking at cryptocurrencies recently. As with any potential asset class my goal is to measure the future potential benefits of an investment and compare it with the risks.
Anyone can create a cryptocurrency as long as there’s a community backing it. That’s why there are over 1,000 digital currencies in the world today. According to Coin Market Cap, the 3 most popular ones are Bitcoin, Ethereum, and Ripple, in order of market capitalization. There are many smart people supporting these digital currencies built on blockchains, which is essentially a public record of transactions. For example I’ve been following investor Brock Pierce on Twitter. He used to be a child actor in many Disney movies lol, but what Brock Pierce is doing today is very promising for the cryptocurrency market. According to his crunchbase profile, he’s been in the venture capital space for over a decade now and is trying to make Bitcoins more mainstream. In an interview last month with The Guardian, he predicts that the “underlying technology of blockchain is going to impact our world more than the internet has.” And he’s not alone. Patrick Byrne, the CEO of e-commerce giant overstock.com, firmly believes that Wall Street will be forced to accept Bitcoin technology faster than most people think. Byrne’s company was the first major retailer to accept bitcoin as payment starting in 2014, long before competitors like Microsoft and Dell.
One major barrier to entry with bitcoin has been the lack of acceptance among merchants. From a consumer point of view, there’s not much point in holding an asset that hardly anyone recognizes. But if cryptocurrencies really catch on with mainstream consumers then now may be a good time to buy and hold some digital coins for diversification purposes. The price of bitcoin has risen 500% in the last 12 months, according to coindesk. And the price of Ethereum has gone up over 2500%. Wow! 🙂 I don’t have any digital currencies yet but I’m tempted to put a small amount of money into either Bitcoin or Ethereum and hold it for the long term. One problem is that buying cryptocurrency can be difficult for Canadians. Both the established banking system as well as the government really don’t like blockchain technology because it’s decentralized and not easy to tax or control.
For anyone interested to gain exposure to the price of bitcoin without actually buying any, there’s a fund for that. 🙂 Investor Barry Silbert has been one of the most active angel investors in Bitcoin. He has funded over 40 bitcoin-related startups such as BitGo, BitPay, Coinbase, Gyft, Kraken, and TradeBlock. He also launched the Bitcoin Investment Trust, which is publicly traded under the symbol GBTC in the United States. This trust solely invests in and derives value from the price of bitcoin. This gives investors the chance to benefit from bitcoin price movement through a traditional investment vehicle, without the hassle of buying, storing, and safekeeping bitcoins. But personally I would rather own a digital currency directly so not to pay management fees, especially when I plan to hold for a long time.
When it comes to investing in alternative asset classes, it’s worth looking at digital currencies. I don’t intend on investing in Bitcoins right now. I will continue to do more research on it first. Even if I decide to purchase some in the near future I will keep my cryptocurrency exposure to less than 1% of my net worth. Bitcoin may outperform stocks over the next 10 years, but it also carries a lot of liquidity and volatility risk.
Random Useless Fact
Potato chip bags are not full of air, but of nitrogen gas. This is done to prevent the chips from oxidizing and going stale in the bag.