Bitcoin continues to sink in value as tensions surrounding the Russia-Ukraine conflict are in part being blamed for the cryptocurrency’s recent fall. But investors thinking of jumping into Bitcoin or other cryptos now that prices have dropped should be cognizant of the real risks involved, says portfolio manager John Hood, who lists off a number of reasons to be skeptical.
“I don’t recommend Bitcoin because to me you don’t know what’s on the other side, who’s on the other side of the transaction,” said Hood president of JC Hood Investment Counsel, who spoke on BNN Bloomberg on Tuesday.
“There are a lot of things about it that are uncertain and that I don’t like and the very fact that the US Securities and Exchange Commission has rejected that coin for those very reasons [concerning] lack of transparency, that’s an issue for me. So, I really don’t want those things in my portfolio,” Hood said.
Bitcoin rose markedly on Tuesday, taking the price above $48,500 as of mid-afternoon, as the cryptocurrency tries to rally from a slide over the past week and a more general downturn that started in November. That came on the heels of a massive upswing in cryptos like Bitcoin and Ethereum as investors flocked to the sector over the past year and a half, taking bitcoin from roughly $12,000 in mid-2020 to an incredible $83,000 by this past November.
But while cryptocurrencies continue to gain more legitimacy as a trading vehicle if not a store of value similar to gold, bumps in the road are still evident, with the SEC’s position on the coins being a case in point. So far, the US Securities and Exchange Commission has approved Bitcoin futures in ETF form but have rejected the bid for spot ETF applications, and interested parties are waiting to see what becomes of an application from digital currency asset manager Grayscale Investments which has recently encouraged the public to submit comments to the SEC in support of its bid.
“To date, the SEC has only permitted Bitcoin Futures ETFs, while rejecting ‘physically-backed’ or Spot Bitcoin ETFs,” reads the Grayscale announcement on Tuesday. “The choice should be yours. If you’ve been waiting for the familiarity and protections of a Bitcoin ETF, we believe you should not be forced into a Futures-based product simply because it’s the only one that exists.”
The story is different here in Canada which last year became the first jurisdiction in the world to approve a bitcoin ETF with the Purpose Bitcoin ETF, later bringing in the Evolve multi-cryptocurrency ETF among others.
But Hood says the SEC’s position is nonsensical since futures trading on cryptos only makes the prospect for your average retail investor even more unclear and risky.
“The one advantage we have in Canada with Evolve and Purpose is these are on spot prices, current prices, whereas in the US they have this curious argument that they can’t regulate [cryptocurrency] on a spot basis but they regulate it on a futures market. So, you can buy Bitcoin on the futures market, which makes absolutely no sense because most investors buying Bitcoin have no idea of how the futures market works,” he said.
United States President Joe Biden is reportedly about to issue an executive order this week which will look into the environmental and financial risks associated with cryptocurrencies. As reported by Yahoo Finance, one of the aims of the order will be for the SEC, the Commodities Futures and Trading Commissions and federal banking agencies to report on how to protect consumers, investors and businesses from the risks involved with cryptocurrencies, while the Federal Trade Commission will investigate privacy issues related to digital assets.
“The President will direct agencies across the government to study cryptocurrencies as well as the Central Bank Digital Currency to come up with a wide-ranging government strategy to regulate digital assets,” said a Yahoo Finance reporter relaying information from an administration official familiar with the issue.
With the rise in prices for cryptocurrencies in recent years there has been an influx of mining companies either joining the industry or greatly ramping up their mining capabilities at the same time as the computational power or hashrate required to mine Bitcoins grows, a feature integral to the blockchain structure underlying the currency.
But while the industry grows in size and mining operations shift away from China to the US, Canada and other locations, the nature of Bitcoin and other coins as an investment vehicle continues to perplex. Some say Bitcoin’s price movements have been linked more heavily to the equities market more so than traditional stores of value like gold, for instance.
“Bitcoin’s safe haven narrative has almost completely fallen apart as the rising possibility of military conflict and the worsening U.S.-Russia relationship puts the wider financial market in risk-aversion mode,” said Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank, speaking to CNBC on Tuesday.