Bitcoin is the Ponzi scheme of the century, Larry Berman says

You may have had your share of FOMO — that’s fear of missing out — in recent years when it comes to cryptocurrency Bitcoin, but fund manager Larry Berman is here to put your mind at ease. In fact, steering clear of Bitcoin is the wisest advice he has for investors thinking about investing in crypto, saying that buying Bitcoin is and will always be pure speculation.

“I think fundamentally it’s worth zero,” says Berman, co-founder of ETF Capital Management and Quintessence Wealth, who spoke on a BNN Bloomberg session on Monday.

“It’s probably going to be the biggest Ponzi scheme we’ll ever have, including tulips, that we’ll ever see, when the history books are written 100, 200, 300 years from now,” he said. “Time will tell.”

Bitcoin fell over eight per cent on Monday in acceleration of a slide that mirrors the pullback in equities in recent trading sessions. So far in May, the cryptocurrency has slid from over US$37,000 per coin to now US$30,800, having lost almost 28 per cent of its value over the past month alone. Bitcoin was worth US$67,000 as recently as early November of this past year before starting a drop-off that has been felt in other riskier sectors of the market including technology and biotech, as investors retail and institutional pull out some of the huge sums of wealth that have been added to global markets over the past couple of years.

The turnaround in sentiment on equities is one thing, but the behaviour of an asset like Bitcoin was, at least by some, billed to be something different and more akin to a store of wealth like gold. But there’s been little sign in recent years that cryptocurrencies are destined to settle down and become the hedge against inflation some may have expected. 

For Berman, that volatility keeps Bitcoin firmly within the category of high-risk bets.

“Is it an asset that you can trade? Absolutely. Will it have a positive correlation as an inflation hedge? Yes, from time to time,” Berman said. “What is it that makes it move? That seems to change by the week or month or the current promotion going on in that space.”

“Some people love it, some people call me an idiot for talking about it this way, but that’s my view. I do not recommend investors put [Bitcoin] into their portfolios as a way to diversify. As someone who’s a fiduciary and looks at prudence and the prudent man rule,  what would I do for my portfolio? It doesn’t make sense because I don’t understand what it’s worth and if I can’t understand approximately what it’s worth, then I have no business investing in it,” he said.

“Can it be traded? Absolutely. Good luck with that, by the way. Whether it’s an inflation hedge, again, time will tell if it’s proven out to be a little bit of one. But it also moved up in periods of deflation, so what is it? It’s a speculative asset — it’s worth what the next person is going to pay for it,” Berman said.

Along with Bitcoin’s recent drop in value, crypto-related businesses like mining and fintech companies have had it rough. From a Canadian perspective the Purpose Bitcoin ETF (Purpose Bitcoin Stock Quote, Charts, News, Analysts, Financials TSX:BTCC) has lost about half its value since mid-November and dropped almost 15 per cent on Monday alone. Meanwhile, crypto-miner HIVE Blockchain (HIVE Blockchain Stock Quote, Charts, News, Analysts, Financials TSXV:HIVE) has now dropped over 70 per cent of its share price since November and Luxxfolio (Luxxfolio Stock Quote, Charts, News, Analysts, Financials CSE:LUXX) has lost 60 per cent of its value, year-to-date, and posted lower revenue in its most recent quarter, stemming from a lowered price of Bitcoin and a higher global hashrate (the computing power needed to mine a coin). Shares of crypto-trading platform Voyager Digital (Voyager Digital Stock Quote, Charts, News, Analysts, Financials CSE:VOYG) has lost over 80 per cent of their value since November.

Commenting recently on Luxxfolio’s fortunes, analyst Kris Thompson of PI Financial said the company’s is developing its mining capabilities agreeably — Luxxfolio is nearly doubling its available power for mining at one facility from 8 MW to 15MW by the middle of this month — but the global drop in crypto values are cause for a dimmer view on the company and stock.

“Operations were fine but the economics of bitcoin mining has materially deteriorated since we launched coverage,” Thompson said in a May 4 update.

Thompson maintained a “Buy” rating on LUXX, however, but dropped his target price from C$1.20 per share to C$0.40 per share, which at the time of his report’s publication represented a projected one-year return of 74 per cent.