Every year, I review my investments and plan for where I might move the “explore” portion of my portfolio during the 12 months ahead.
A few years back, I added cryptocurrency to the process, figuring there might come a day when I was ready to take a small plunge.
I never actually invested in crypto, but my look-ahead for 2023 makes it clear that it’s definitely not happening now.
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I’ve never held myself out as a crypto expert, but I have been covering the space from its very beginnings, and have watched it move from the hype of hobbyists to something my friends and neighbors are discussing as much or more than they chat about international stocks and bonds.
Investors considering crypto tend to come from three camps: the true believers, the non-believers and the people in the middle either waiting to be convinced or willing to take a small shot. I’m in the middle group.
While I’ve never bought any coins, I do have $12 worth of crypto, or that’s what I was told it was worth years ago when one promoter gave me $10 worth of DuckDuckCoin and another offered $2 in BBQCoin. (I don’t turn down free money.)
By now, I suspect that the value of my crypto holdings is about equal to the very real $1 billion bank note from Zimbabwe that I keep in my office. (Last time I checked, 1 billion Zimbabwe dollars were worth a bit less than a penny in the U.S.)
The problem that has pushed me further away from crypto at a time when I wanted to be liking it more than ever is not the controversy stemming from Sam Bankman-Fried and the collapse of FTX, the never-ending headline risk or performance so miserable in 2022 that it made other declining assets like stocks and bonds look like big winners.
It’s that crypto didn’t do the any of the jobs that its supporters tell me it should do, and there is no reason to think that trend will change.
I am not expecting my thinking to change the mind of true believers. Bitcoin BTCUSD, +0.06% and ethereum ETHUSD, +0.25% and their competitors have attracted plenty of HODLers — investors who “hold on for dear life” — who are still in despite seeing their crypto assets cut by roughly 66% in 2022, and they may prove to be the long-term victors. Indeed, many of them have been clutching on to crypto for so long that they remain in plus territory despite the recent downturn.
But crypto enthusiasts won me over just a little bit a few years ago, when I started including crypto in my year-ahead planning and decision-making. Just getting into the discussion was a victory, and that happened because a lot of smart, savvy investors were telling mainstream customers to dip toes into the bitcoin pool.
The idea, of course, was that crypto had a few functions. It could be a digital alternative to gold, some said, helping as a hedge against inflation. It was unregulated and could withstand global economic and political crises better than traditional currencies, according to other experts. It was the wave of the future and would eventually be accepted everywhere.
But none of those things actually happened.
Gold GC00, -0.14% is the traditional hedge for inflation, but it hasn’t worked well at all since prices started rising globally. Recently, gold has functioned better as a hedge against geopolitical uncertainty; as such it could find a place in many portfolios.
But crypto hasn’t been an alternative to gold on balancing out inflation, and its de-centralized, unregulated status hasn’t helped it during times of societal unrest.
Liz Ann Sonders, chief investment strategist for Charles Schwab & Co., said in a recent interview on my podcast “Money Life with Chuck Jaffe” that she asks crypto enthusiasts to “explain to me what problem crypto is solving for,” and most often gets inflation and other reasons for why the new currencies are better than the old ones.
“In the meantime,” she said, “we have the biggest outburst of inflation in 40 years and guess what became the ultimate inflation hedge? It was the fiat currency that is the U.S. dollar.”
Legendary mutual fund manager Ralph Wanger — who ran the Acorn Fund for over 30 years and who, at nearly 90 years old, still watches the market — said on my show last week that crypto “was a solution in search of a problem,” but if it’s not solving a problem, then it doesn’t have a role, at least not in my portfolio.
Meanwhile, I watch things that aren’t considered cryptocurrency — like Amazon AMZN, +1.49% gift cards — get used in transactional ways that crypto has yet to achieve; my electrician now accepts payment in Amazon and Dunkin gift cards. Taking that a step further, if someone comes up with a possible use case for cryptocurrency today, I wonder what’s preventing the invention of a slightly better new coin tomorrow that displaces everything.
No one knows if crypto can overcome the bad news and the headlines to have a bounce-back year in 2023. The arguments on either side can be compelling.
But until there are more proven answers than actual questions, investors who were ready to join the movement will be better off keeping their toes dry.
Chuck Jaffe is a MarketWatch columnist and host of the “Money Life with Chuck Jaffe” podcast.
Crypto market's collapse exposes a giant, unregulated casino, hijacked by greed.
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