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Current Thoughts on Crypto-Currency


I have never seen much value to crypto-currencies like bitcoin, except for criminals and speculators.  However, the collapse of Afghanistan has demonstrated other uses.  Importantly, crypto-currencies are easier to hide from the Taliban than Dollars.  In addition, crypto-currencies allow Afghan citizens in the U.S. to send spendable money to family remaining in Afghanistan without governmental restrictions.

Last year, crypto-currency holdings in Afghanistan were among the lowest in the world.  Today, it is among the top 20 out of 154 nations.  The rush into crypto-currencies by the Afghan people reflects their belief that the existing Afghan currency would continue losing value, having already lost 9% in the last few months.  Before crypto-currencies, foreigners would dump their local currency and buy Dollars.  However, the U.S. has now cut off Dollars going into Afghanistan by eliminating any convertibility.  Afghans cannot buy dollars right now, which makes bitcoin more attractive.

A watershed moment happened in April, when Coinbase went public, demonstrating the growth of crypto-equities — companies that serve the ecosystem of crypto-currencies or “coins.”  Those companies are miners, equipment manufacturers, service providers like banks, and exchanges for trading, like Coinbase.  There are already asset management companies and third-party custodians.  While most investors have focused on the wild volatility of bitcoin, it is easy to ignore the ecosystem that has developed around it.  Importantly, there is some evidence that crypto-equities are less volatile than the actual currencies, with only a 50-75% correlation.

However, investment vehicles are still limited.  You can buy a coin, but which one?  Today, there are more crypto-currencies than traditional national currencies.  Of course, there will be some natural selection or “survival-of-the-fittest” . . . but not yet.  You can buy stock in some of the crypto-equities, like Galaxy Holdings in Canada, but it is difficult to understand their financial statements, and there are too few “buy-side” analysts to help.   The available opportunities, like GBTC, charge high fees.  An exchange-traded-fund is inevitable, and I may add some exposure to my portfolio at that time, strictly as a hedge . . . but not yet.

Now, ask yourself if you really want to speculate with non-dollar currencies??  You can already do that, with pounds, euros, yen, rubles, and many others.

Stay tuned . . .

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