What 4 share market experts think of cryptocurrencies

Let’s talk about Bitcoin, Ethereum and all those other blockchain monies that you can’t touch. Are they fair dinkum investments now?

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Cryptocurrencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) have caught fire in the past year, with even some institutional investors giving the thumbs up.

The industry has always faced the criticism that the assets do not have any intrinsic value. The value of the currency is purely driven by supply and demand.

This is not to mention how the anonymity of ownership and transfers allow criminals to use it as a way to extort money.

The most prominent example was this year’s ransomware attack on Colonial Pipeline. With a large swathe of the United States facing a fuel shortage, the company gave the blackmailers almost US$5 million of Bitcoin to restore operations.

These downsides haven’t changed, so why are cryptocurrencies now gaining ‘mainstream’ acceptance?

The Motley Fool canvassed the view of 4 share market experts to hear what they think of digital currencies.

Crypto will go nowhere

Frazis Capital Partners portfolio manager Michael Frazis predicts cryptocurrencies will stay flat in the long run.

“About a decade ago there were all kinds of bull and bear markets around gold — it’s more or less where it traded 10 years ago,” he told The Motley Fool.

“I think something similar is in store for crypto — sideways movement.”

He acknowledged there’s now “enormous institutional investor demand” and original use cases not fulfilled by traditional assets. 

This would continue to drive demand, but there were also considerable headwinds.

“It will be hard for cryptocurrency to sustain its ~US$2 trillion peak given the entire global equity market is around US$100 trillion,” said Frazis.

“Currently, its market cap is about in line with the largest global tech company. Of course, this isn’t apples-to-apples but is a useful sense check.” 

How do you handle crypto volatility?

Medallion Financial Group managing director Michael Wayne told The Motley Fool that his knowledge of cryptocurrencies was “limited”. But as a layperson, he has many questions.

“Who controls the cryptocurrency? Who regulates the cryptocurrencies? Who regulates the market exchanges?”

Wayne also said the volatility stopped them from becoming “a reasonable means of transaction”.

“Would an average person accept your salary paid in cryptocurrency, or cryptocurrency as a form of payment for a good or service, knowing there’s a chance the purchasing power of that currency could fall 30% overnight?”

There were knowledgeable people investing in digital currencies with valid investment theories, admitted Wayne.

“I wish these people the best luck but also caution that there’s an equally as good chance it could all end in tears.”

Bitcoin is narrative-driven

Montgomery Investment Management portfolio manager Joseph Kim didn’t have an opinion either way about the investment value of cryptocurrencies.

His only concern was the old ‘intrinsic worth’ argument.

“I just see them as an expression of making fiat with a popular narrative for Bitcoin — that is, limited supply.”

Bitcoin isn’t an investment

Marcus Today director Marcus Padley, like Wayne, is put off by the volatility of digital currencies.

The worth of one Bitcoin has gone from about $40,000 at the start of the year to more than $80,000 in April, to now $52,533.

“What that tells me is that Bitcoin isn’t an investment — it’s too volatile. Certainly not for my [client] demographic, as most of my members are over the age of 60,” he told ABC News Breakfast on Tuesday.

“It’s too much of a gamble. It’s ‘unannualisable’.”

Padley also expressed concern that the public image of cryptocurrencies has shifted since the Colonial Pipeline incident.

“It’s proliferating crime. Cryptocurrency is supposed to be used for tax evasion and terrorism. They’re now calling it terrorism — ransomware.”

This tipping point could mean that regulation could be forthcoming.

“Certainly putting the whole of Texas without heating is not something you want to do if you want your cryptocurrency to be left alone,” said Padley.

“The FBI went out and recovered some of the ransom cryptocurrency, and broke this anonymous seal — so watch out.”

Tony Yoo owns Bitcoin and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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