Are cryptocurrencies socially acceptable and do they belong in a well-diversified investor portfolio these days? Or is it purely a speculative instrument? The personal assessment of our stock market expert Thomas Gebert.
First of all, I am not a friend of Bitcoin and co. I am bothered by the high electricity consumption. In the meantime, the Bitcoin complex consumes almost as much electricity as the entire Netherlands due to the calculation of new Bitcoin and transfers. One point in particular seemed to me to stand in the way of meaningful use right from the start: With every transaction, the information from all previous transactions is dragged along by the special accounting procedure. This results in an exponential increase in the computing time required and therefore in power consumption. It is therefore only a matter of time before Bitcoin consumes as much electricity as the entire USA. Bitcoin is therefore inherently finite.
But let’s ignore the high electricity consumption and the associated CO2 emissions, against which there will be resistance sooner or later. Bitcoin is also sometimes touted as a safe investment in times of crisis, as the new gold, so to speak. But this picture is wrong. The gold price clearly shows a complementary development to share prices. In times of economic upswing, when long-term interest rates rise, shares gain, especially cyclical ones such as those in the automotive and chemical industries. The rising interest rate makes gold appear less attractive. In an economic downturn, on the other hand, when long-term interest rates fall and industrial stocks tend to weaken, the price of gold rises because lower interest rates make gold, which does not pay interest, appear more attractive. A combination of gold and equities can thus reduce fluctuations in the value of the portfolio. Bitcoin does not perform this function because, as the past has shown, it is essentially a “risk-on” investment. When shares rise, Bitcoin also tends to rise. If the risk appetite increases when a crisis escalates and share prices fall, it also falls. The movements are more pronounced, but the timing of the highs and lows is more or less the same for shares and Bitcoin. Buying Bitcoin therefore does not reduce the risk in your portfolio, but increases it considerably.
It is always said that there are tens of billions of dollars in Bitcoin, but there is not a single dollar in the computers on which the Bitcoins are stored. Exactly as much as flows into Bitcoin flows out again at the same time, as there is a seller for every buyer. It is therefore just a redistribution mechanism that specifies who has to transfer how much to whom.
And now a very personal comment: I also find the large price swings annoying. Ten percent up in one day and 18 percent down at night is nerve-wracking for me. I can only invest a small amount in such a volatile investment and a small amount does not bring me any significant advantage. I need an investment in which I can also invest a larger amount and still sleep well.
From Thomas Gebert
Board of Directors of Point Capital Group
Stock market expert and multiple book author
3. August 2021
