Worried about missing out on the bitcoin’s latest surge? Don’t bother, says portfolio manager Lorne Steinberg, who thinks there are way better options for your investment dollars.
Bitcoin had another good weekend, climbing seven per cent on Sunday as the rest of the market took a couple days off. The cryptocurrency was a four-bagger last year before jumping in the early weeks of 2021 from $36,900 as of January 1 to as high as $51,700 a week later.
Bitcoin has pulled back a bit since then but it’s still up plenty, while ether, the second-largest cryptocurrency hit an all-time high of $1,476 early on Monday.
Is this a new level of legitimacy for Bitcoin and Co. or merely the rise of crypto-bubble 2.0?
Either way, Steinberg says not to bother.
“I wish I had some intelligent advice to give [on bitcoin] but this is such a speculative area of the market,” says Steinberg, President of Lorne Steinberg Wealth Management, speaking on BNN Bloomberg on Friday. “It brings to mind Warren Buffett’s old line, ‘If you don’t understand what you’re buying, then don’t buy it.’”
“There are some really bright people including [JP Morgan Chase CEO] Jamie Dimon who are very negative on bitcoin,” Steinberg said. “It’s hard, I’ve had it explained to me a number of times, and for me unless you’re a drug dealer or trying to hide money, why would you want to get paid in a currency that fluctuates so much?”
Opinions vary about the future for bitcoin, now three years out from its big splash into public consciousness, where in 2017 and 2018 it raised some folks into instant millionaire status after they bought a few tokens on a lark back in 2013 and leading to proclamations of both a blockchain revolution and the death of fiat currency.
And while the common take now is that blockchain’s distributed ledger technology will definitely find an enduring place in finance and other fields, the jury is still out on bitcoin. Its detractors are plenty, but more institutional investors have given bitcoin a spot on the roster, with even Dimon, famous in 2017 for calling bitcoin a fraud, having since gone from utter condemnation to saying investing in bitcoin just isn’t for him. Meanwhile, JP Morgan is now offering its clients banking services to cryptocurrency exchanges.
Why has now been the time for renewed interest in cryptocurrencies? Part of the answer stems from uncertainty surrounding the COVID-19 pandemic, which caused some investors pull out of stocks and into vehicles like gold and bitcoin. But its growing status among institutional investors has been part of the story, as well.
PwC’s global crypto leader Henri Arslanian says bitcoin’s rise is due to a mix of further entry into the field by institutional players and yet another round of fear of missing out from retail investors.
“With these two big elements driving it, there’s a lot of momentum going on in the space. There’s a lot of optimism in the crypto markets as well,” said Arslanian to CNBC on January 4.
But Steinberg said even if you have faith in bitcoin’s longevity, make it a fraction of your portfolio rather than betting the farm.
“I have to say for us it just falls into the category of ‘we don’t understand it and don’t want to pretend that we do,’” said Steinberg. “It’s been on such a wild ride and no one even fully understands why. Some say it may replace gold one day.”
“It’s just so much easier to look for companies with growing earnings and dividends,” Steinberg said. But, you know, it’s a speculation so if one makes a speculation, let it be a small part of your network.”
The flow of retail money into bitcoin is still huge compared to institutions, however, with about one per cent of the current $600-billion market for bitcoin coming from institutional sources.
Goldman Sachs’ Global Head of Commodities Research Jeff Currie said that percentage has to grow before the volatility we’re seeing in bitcoin calms down.
“I think the market is beginning to become more mature,” said Currie to CNBC on January 12. “I think in any nascent market you get that volatility and those risks that are associated with it. The key to creating some type of stability in the market is to see an increase in the participation of institutional investors and right now they’re small.”
Speaking to the pullback in recent weeks, Tom Jessop of Fidelity Digital Assets said to CNBC on Friday, “We doubled from September to December, moving from $10,000 to $20,000 pretty quickly and then from early December to early January we doubled again, so I think this is a healthy phase of consolidation for the market.”
“Clients and institutions that work with us have been steady net buyers throughout [the bitcoin rally] and we continue to see strong demand among institutions for access to the asset class,” Jessop said.