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The Risks and Rewards of Crytocurrency
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Cryptocurrency—Bitcoin, Ethereum, Dogecoin, Quant and a host of others—seems to be the investing rage these days. Individual and institutional investors, including some insurers, banks and even some university endowments, are tucking them into their portfolios. When he queried his personal finance class at Drake University last spring, Toby White (pictured), a professor of finance there, found that nearly every one of his students had invested in cryptocurrency.
Should these college kids be there? Should anybody? This is very risky stuff, after all. The current price of Bitcoin is 73% below its high point of just a year ago, and day-to-day swings of a $1,000 or more per coin are common. But maybe it depends on your perspective. Kelly Flynn, founder and chief investment officer at Prospective Value Partners in Des Moines, said that on a personal level, he is rooting for cryptocurrencies as a competition for the current sovereign currencies. But on a professional level, he makes a distinction between investments and speculation. An investment is something with intrinsic value, which he can quantify. To him, speculation does not require intrinsic value; it is simply a bet that something will be worth more or less in the future. He sees crypto falling in that camp.
“Its value is impossible to quantify, and it is completely dependent on what someone else will pay for it (what some would call 'the greater fool'),” he said.
For White, the main identifying characteristic of Bitcoin (he’s using that as a proxy for all cryptocurrencies) is the high volatility, which is exactly what drew many young people to it while prices were skyrocketing.
Bitcoin comes with other major risks. First, there is regulatory risk as markets remain largely unregulated and vulnerable to fraud and manipulation. Second, there is security risk, as most cryptocurrency owners don’t obtain it through blockchain technology (as was originally intended) but rather trade it on digital exchanges that are at risk of both hackers and glitches. (Wintermute, a London-based cryptocurrency firm, lost $160 million in a single hack earlier this month.)
Still, White is not necessarily advocating unequivocally against cryptocurrencies. There are certain types of investors, especially among the younger generation who have less to lose and more to gain, who may be legitimately suitable for, and attracted to, the prospect of high returns in the short run, despite the risks. Whether an investor can accept this type of foray depends on their risk tolerance, investment goals and experience, and overall personal makeup.
To better understand cryptocurrencies, check with the Iowa Blockchain Network, which explains the landscape in simplified terms.
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How to Invest in Crypto
BY STEVE DINNEN
It’s pretty easy to buy cryptocurrency. It’s easier still to buy stock in MicroStrategy Inc. (MSTR), a publicly traded company that as of late September had amassed a stockpile of 130,000 Bitcoins.
As the popularity of cryptocurrency has risen, a number of firms that specialize in handling exchanges of the currency, or investing in them, have sprung up. There even is an exchange-traded fund—Amplify Transformational Data Sharing ETF (BLOK)—that specializes in crypto.
The value of cryptocurrency can rise and fall dramatically over the course of days or even minutes. This creates volatility in securities: MicroStrategy (MSTR) has wandered between $134 a share and $891 over the past 52 weeks, and most recently traded at $209.31, for a shellacking of 76.5%. (Bitcoin itself, at $19,114, is 72.3% lower than its 52-week high.) Other crypto stocks have fared the same, with Marathon Digital Holdings (MARA), Coinbase (COIN), Square (SQ) and BLOK all sustaining losses exceeding 50%.
Toby White, professor of finance at Drake University, said cryptocurrency companies are just now trimming trading costs to promote sales. If that somehow enhances values, share prices should follow suit.
Cryptocurrency proponent Michael Saylor, CEO of MicroStrategy, sees Bitcoin values rising 25-fold by 2026, to the $500,000 level. MicroStrategy happens to own 131,000 Bitcoins.
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See How Your Retirement Nest Egg Adds Up
BY AMY LEGATE-WOLFE FOR YAHOO FINANCE
Even Americans with only modest retirement funds may be shocked to learn how many people are in desperate straits—as in, they have no nest egg at all.
New research by the Federal Reserve shows that an astounding 1 in 4 Americans (including the 27% who consider themselves retired) have absolutely nothing saved.
And even if you have something tucked away, it may not be enough—though that is something you can change even late in the game.
Americans run an estimated $3.68 trillion behind in retirement savings, according to the Employee Benefit Research Institute. While this includes all people aged 35 to 64, those in their 60s still didn’t fare too well.
What’s the average?
A Vanguard study found those between 55 and 64 held an average of roughly $256,000. But this includes high-income earners; breaking the figures down, it shrinks to a median of about $90,000. Interestingly, much has changed in even the short time since 2021, the source of figures for Vanguard’s study. Last year, Vanguard noted that retirement savings actually increased, thanks to strong performance in the stock market.
READ MORE.
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It's Time to Snap Up Stock Bargains
BY NICHOLAS JASINSKI FOR BARRON'S
Patience in a volatile market like this year’s is a tall order. But it is the recipe for long-term success espoused by institutional investors in Barron's latest Big Money poll. Big Money respondents are relatively negative about the near-term trajectory for financial markets, but optimistic about opportunities over the longer term, given the most attractive entry points in years for both stocks and bonds.
Our latest survey finds 40% of money managers bullish about the outlook for stocks over the next 12 months, and 30% bearish. The bullish cohort has increased from 33% since the spring edition of the poll, which found a plurality of managers neutral, but the bearish contingent has also grown from 22%.
The bulls evince genuine enthusiasm for stocks and see a smart recovery in the offing. Based on their mean predictions, they expect the S&P 500 to gain 15% through June 30, 2023, and 22% by the end of next year.
READ MORE.
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dsmWealth's Suggested Reading
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dsmWealth is published on the first and third Thursday of each month and updated on dsmMagazine.com.
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