By Amiya Moretta
People are always trying to beat the index. And as famously said, if you can’t beat it, you might as well join it.
But with all the buzz around bitcoin ETFs, this is one index Warren Buffett, CEO of Berkshire Hathaway won’t be joining. In a CNBC interview Buffett said, “I can say almost with certainty that cryptocurrencies will come to a bad end.”
Trillions of dollars have moved into ETFs in the last few years. They are relatively safe and cheap. And although bitcoin can be high reward, it is also high risk: the opposite of a traditional ETF.
Kevin Cosens, retired CEO of RF Surgical Systems which sold for $235 million in 2015 said, “I like ETFs because they are a diversified investment with low fees. But I don’t think a bitcoin ETF is diversified. Maybe there is a low fee for the exchange, but I see it as an oxymoron.”
Tom Kreb, a Financial Advisor at Wells Fargo spoke to the volatility of such a specific index stating, “The narrower the scope of the ETF the less diversified it is and therefore, it’s a riskier investment.”
Just because it’s higher risk, doesn’t mean its bad. Bitcoin’s 1,500 percent surge last year is evidence of its demand. Several companies have waved the white flag in the race toward the first bitcoin ETF due to drawbacks from the US Securities and Exchange System (SEC), but Cboe and CME are still in the running, giving those who are bitcoin ETF enthusiasts hope.
According to Barrons, “Both CME and Cboe have set up high barriers to trade bitcoin futures, in order to make sure trading is safe and doesn’t post systemic risk to investors themselves.”
With at least 14 different bitcoin related applications pending, Marc Butler, director at compliance management firm Intelligize told Reuters, “We can expect the SEC to be increasingly watchful over any companies involved in bitcoin activity. Investors should be warned. If it’s too good to be true then it probably is.”
But it’s not just regulators asking tough questions, investors are too. Ron McMahan, CEO of American Mortgage Investment Partners said, “ETFs are for passive investors who don’t want a lot of risks. Bitcoin is extremely speculative for an ETF and probably not suitable for the types of investors who would invest in an ETF.”
Investor and entrepreneur, John Pfeffer, recently wrote a report on Medium titled, “An (Institutional) Investor’s Take on Cryptoassets.” In his report, he sets aside the risks that a given cryptoasset could fail and instead assumes that cryptocurrency develops successfully with widespread adoption.
He makes a firm distinction between cryptoassets that are used as a means of payment much like Visa or Apple/Google Pay and cryptoassets that actually hold a monetary store of value such as Bitcoin.
When looking at long term investment attraction, Pfeffer asserts that cryptocurrencies used as blockchain payments will have fragmented value and would be “generally insufficient in relation to current valuations to offer a long term investor attractive returns relative to the inherent risks.”
However, his one exception is the potential for a cryptoasset to emerge as a monetary store of value, which he believes could be worth many trillions of dollars. “While also risky, this potential value and probability that it might develop for the current leading candidate (Bitcoin) would appear to be sufficiently high to make it rational for many investors to allocate a small portion of their assets to Bitcoin with a long term investment horizon.”
As the value of digital currencies continue to surge, consumers are taking note. At the core of any currency is trust. The more companies use cryptocurrency such as Kodak which recently announced plans to launch a photo-centric cryptocurrency called KODAKCoin (and saw as much as a 125 percent stock surge), the more people will trust cryptocurrency and the more likely a bitcoin ETF will emerge. And with a fixed supply of bitcoin, when the demand increases- so will the price.
Many of Buffett’s market predictions have been correct but certainly not all (Google and Amazon most notably). In September, Jamie Dimon, JPMorgan Chase & Co. chief executive, told an investment conference in New York that bitcoin was “worse than tulip bulbs” and threatened to fire any trader who bought or sold them for being “stupid.”
The price of bitcoin has more than tripled since these comments were made just a few months ago and in a recent interview with Fox Business, Dimon said he regrets saying that bitcoin is a “fraud.” Will Buffett also regret saying that cryptocurrencies will come to a bad end? It’s hard to say.
If you want to learn more about the cryptocurrency market and the bitcoin ETF, consider attending the North American Bitcoin Conference happening January 18-19 in Miami, Florida.
Speakers include Patrick Byrne, CEO at Overstock.com, Halsey Minor, founder/co-founder of CNET and Salesforce.com, Craig Sellers, co-founder of Tether, and Brock Pierce, chairman of the Bitcoin Foundation.
For more information on the cryptocurrency market, visit our Bitcoin category.