Are Cryptos Blowing Away?

I’ve written before about cryptocurrencies when they were growing, so I thought it only right that I also comment on them when they are falling. Bitcoin is now trading at less than half of what it was at last November. It’s gone from a peak of $69K/coin down to just $30K.

That’s a sad drop for a digital currency that was supposed to help protect against inflation. With inflation topping 8%, I would have expected cryptos to be performing well in 2022. Of course they grew so fantastically well in 2020 & 2021, maybe they had no where to go but down?

That is the problem with assessing cryptocurrencies, in my mind – they are so dynamic and new that it’s hard to know what the baseline of their value should really be.

Was it last November when Bitcoin hit its $69K peak? Or, was it pre-COVID 2020, when it was $9K. It has either outrageously crashed, or incredibly topped Wall Street over those two periods. The asset is really too volatile to properly assess it.

My personal reference point is June 2017 when I made my ‘hobby investment’ into cryptocurrencies. That makes me look like a genius. My portfolio of Bitcoin & Ethereum has gone UP over 490% since then. I could obviously weather quite a few years of nasty inflation with those returns.

If nothing else, 2022 should be a reminder of how speculative this market is. For some reason that lesson is easier to understand when values fall than when they are going up. Still, I think it is highly unlikely that cryptos are blowing away and that this is their last chapter.

I still believe they are as likely to go to $1M/coin as they are to go to $0. What says you?

Image Credit: Pixabay

6 thoughts on “Are Cryptos Blowing Away?

  1. I make my living working with technology. There are great things the blockchain technology is doing and more real use cases for using this technology. I did not invest in the crypto currencies as I thought it was all hype. I still do! In hind sight I really wished I did put in a bunch of money into Bitcoin years ago and made 1000%+ profit, but I could say the same about Tesla stock. I am just a boring index investor and assume I have some coverage of Crypto in owning the whole stock market index as there are some listed crypto stocks included.
    We are now seeing some of impacts of legislation on the use of crypto like the IRS requiring the capital gains to be reported when using crypto to make a purchase. The transaction costs and other issues with creating and using a currency didn’t disappear with the blockchain technology. Even some of the privacy/anonymous claims that were promised are being proven incorrect as governments are able to freeze and track transactions. My view is all these crypto currencies will battle it out and most will go to zero. My bet is (if and when) there are a couple of clear winners in the crypto currency market they will not be seen as investment anymore than holding a world wide reserve currency like the US$.

    Liked by 2 people

    1. Appreciate your perspective, Tech. I’ve been notoriously wrong on Tesla, Facebook, Amazon, etc – but I do think there is real value in cryptos and they are here stay. I don’t view them as an ‘investment’ as some do – they just need to serve a role as a safe store of value against government currency. That’s why I’m surprised that they aren’t doing better during the peak inflation we are seeing right now. Perhaps that inflation was just ‘built in’ to last year’s incredible crypto run.

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  2. I suggest everyone watch a replay of this year’s Berkshire Hathaway Annual Meeting to see what Warren Buffet and Charlie Munger had to say about crypto currency. Charles Munger said, ‘bitcoin is disgusting and contrary to the interests of civilization.’

    My opinion is that most of the initial action in these currencies was driven by people who used it to launder money earned from illegal activities to move it from one place to another. Others jumped on board after seeing that prices were increasing, so that they could get in on the action.

    People are buying with the hope of being able to sell to someone else at a higher price. When the price starts dropping, they become sellers so they can get out before it drops further. There is no intrinsic value in crypto.

    My strategy to fight against inflation is buying dividend paying stocks that are growing their payouts over long periods of time. The expected return for this approach is to earn the sum of current yield and the growth rate. Any capital gains above the growth rate are because a stock has gone from being unpopular to back in favor.

    With an income based investment approach, the main numbers you track are your annual income (current yield) and the growth (dividend increases). You want enough income to live on and for it to grow enough to stay ahead of inflation.

    Liked by 1 person

    1. Thanks for your thoughts, KlausWentzel – I agree with a lot of what you’ve stated, but disagree that there is no intrinsic value in cryptos. That is, no less intrinsic value than government currency that declines in value due to constant fiscal mismanagement. Given it’s short, volatile history, I don’t think it should have a significant role in an early retiree’s portfolio, but it will be fun to see it play out!

      Liked by 1 person

      1. I agree with your distrust of fiat currency and governments not living within their means. If a large government wanted to game the system they could decide to not debase their currency to become the world’s next default currency. Currently other large countries are actually experiencing more inflation than the US, so I don’t know who would replace us in the short term.

        I like Tech’s analysis that governments have pierced the privacy of crypto to get a piece of the action. An entity that offered complete privacy and capital safety backed by tangible assets would have an attractive offering for those who desire to opt out of government wastefulness. I receive a newsletter from an author who calls himself the International Man, and he writes about how the Internet is allowing highly productive people to shop around for governments that treat them and their wealth better.

        Liked by 1 person

      2. Buying through a broker, like Coinbase, undermines the privacy benefit, but those that want to stay anonymous still have options to buy/sell on the down-low.

        Liked by 1 person

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