Should crypto have a place in an investor's portfolio?
Portfolio: How I am making sense of Web3, cryptocurrency, NFTs and the like
I hear this question a lot…from family, from friends and from my subscribers.
Should I invest in crypto?
After I provide the standard, yet important disclaimer that I am not a financial professional and I cannot give investing advice, I usually respond that...
imo, YES, crypto should have a place in an investor's portfolio, if both these apply:
The investor has a time horizon of more than 5 years for their investment funds
The investor is a growth / technology investor who is tolerant of volatility in these type of investments
Both these apply to me and therefore I have about 5% invested in crypto. I wrote about my preferred cryptos and current holdings here.
Now the key word here is "invest" because - cryptocurrencies are about as "emerging" as they come these days. If you think the dot.com bust in the early 90s was emerging technology, then cryptocurrencies are at least 5 years more emerging than that.
What I find promising is that the technology has the potential to change how many of today's business transactions are conducted....that's it:
I don't subscribe to the store of value thesis - I don't care if Bitcoin goes up to $100k per coin or if Dogecoin goes to $1.
There is a lot of want-to-get-rich-quickly speculation in many corners of the crypto world. FOMO-galore which leads to hasty buys at the highs when your Uber driver is talking about it and a Kardashian is pumping it on Twitter.
Adoption is far from mainstream. It is limited to a handful of countries run by dictators and autocrats, rampant with high inflation and failing local currencies.
I don’t think anyone has paid for a Tesla with Bitcoin or a movie ticket with Dogecoin. If anything is being transacting with crypto, there is underlying conversion to and from fiat happening, which undercuts the adoption argument.
Criminal usage is rising as is evident by the hacks and ransomware attacks that are demanding crypto payments in return. If any entity tries to circumvent the sanctions on Russia via cryptos, then it is a crime too and will be tackled as such.
The recent Time magazine featured Ethereum co-founder, Vitalik Buterin, who lamented that there is too much focus on making money versus actually improving the technology. It will be interesting to watch the tug-of-war between the VCs who are investing big-money versus the maximalists who founded these projects. At some point, the VCs will want to see a business use-case take shape, be proven in the real world and make money. The purists (god bless them) will want to continue to save the world.
So while all these things get sorted out, I continue to learn about developments in this space - it is like drinking from the fire hose, for sure. I focus my research on picks and shovels cryptos that could win irrespective of the front-end crypto platform. I look for adjacent investment opportunities like this one I wrote about.
5% is about what I am willing to put directy into cryptos and potentially lose if everything goes to the crapper. That's what investors in emerging technologies do.