You’d have to be living in a cave on some uncharted isle to not have heard of Bitcoin. It’s perhaps the most well-known of all the cryptocurrencies.
“Cryptocurrency is a form of digital money that is designed to be secure and, in many cases, anonymous,” says Adam Bergman, CEO and Founder of IRA Financial in Miami Beach, Florida. “The first cryptocurrency was Bitcoin which was created in 2009 and is still the best known. There has been a proliferation of cryptocurrencies in the past decade and there are now more than 1,000 available. Bitcoin is a digital currency which relies on peer-to-peer software and cryptography.”
While names like Dogecoin, Algorand and Ethereum have been in the news lately, it remains the old standby — the OG of cryptocurrency — Bitcoin that has come to represent all others. But does its popularity have any oomph to it, or is it just another example of “tulip mania” or just another collectible fad. Or is it like something else?
“Bitcoin is like tulips in that there are times when the price of Bitcoin is driven by nothing more than unfettered greed and the naïve view that the price can only go higher,” says John Kauth, CEO of Intercontinental Wealth Advisors in San Antonio. “It is like baseball cards in that there is a finite number of bitcoins. It is like commodities and stocks in that it can be a legitimate asset class.”
Still, it’s somewhat easy to understand the fascination with this relatively novel financial instrument.
“Investors are always interested in new or growing categories,” says Stuart Robertson, CEO of ShareBuilder 401k in Seattle. “This is a popular topic and there have been Bitcoin millionaires. The same can be said for those that invested early in Tesla, Apple, Netflix, Amazon or any of the single stocks that have experienced great growth. On the other side, there are instances of Enron’s and other collapses.”
It remains a tad too early to know for sure, but there are signs the movement towards cryptocurrencies in general and, in particular Bitcoin, may have ramifications on traditional investment classes.
“The interest in Bitcoin and other alternative assets are a clear indicator that tectonic movements in the overall economy are occurring beneath our feet,” says Chris Kline, COO and Co-founder of Bitcoin IRA in Sherman Oaks, California. “El Salvador just recognized Bitcoin as its reserve currency and more institutions are adopting digital assets. We are seeing a shift in real time. Today’s investors are not settling for cookie cutter retirement plans.”
Kline isn’t the only one who has begun to see movement in the retirement area. Bergman says, “We have seen a surge in interest from IRA and 401(k) investors over the last few years looking to gain exposure to Bitcoin and other cryptos in a retirement account, especially a Roth IRA where all gains can be sheltered from tax.”
If retirement plans open up themselves to cryptocurrency investments, the move might have an impact on the overall market.
“There are trillions of dollars saved away in retirement accounts, unlocking this market place would be a wave of new investors into Bitcoin,” says Chris Gure, a financial consultant in Raleigh, North Carolina.
If this demand comes to fruition, it will be bullish for cryptocurrencies.
“The increasing interest indicates that institutions and fiduciaries are hearing from their clients that they would like to be able to get exposure to these newly investable assets,” says Jahon Jamali, Co-Founder and Chief Marketing Officer at Sarson Funds in Sherman Oaks, California. “Institutional and retirement plans’ inclusion of cryptocurrencies brings expanded participation and fresh capital to cryptocurrency markets which should lead to higher asset prices, all else being equal.”
More than just demand push, there’s a potential academic reason that could drive dollars away from standard investment classes to cryptocurrencies. “They are uncorrelated assets,” says Guy Baker, Founder of Wealth Teams Alliance in Irvine, California.
Here’s where it’s possible to see a rotation from one asset class to another using classic portfolio management terms to justify the change.
“The interest in investing in Bitcoin signals a diversification move regarding the overall markets,” says Daniel Strachman, Managing Partner at A&C Advisors in Coral Springs, Florida. “People are searching for returns and while the equity markets have been running for a number of years, there is an expectation that the run can’t last forever. Exposing a portion of their portfolios to this asset allows for diversification addresses this.”
On the flipside, since Bitcoin and its brethren appear to attract a younger crowd, it might initiate more interest in the art of investing in general, and this could be a positive signal for all areas in the market.
“There clearly is a growing trend towards embracing the new asset class, with many trusting this new currency as a store of value,” says Chris Panteli, Founder of LifeUpswing in Denver. “Some of the newcomers are newcomers to markets as a whole, and the introduction of a new asset class may help them to feel more comfortable.”
So, Bitcoin can be all things to all people, including those with a cynical bent.
“The interest in investing in Bitcoin and other cryptocurrencies signals a couple of things,” says Kauth. “One, like tulips, some think they can get rich quick by investing in crypto. Two, as advisers, we are always looking for new opportunities and asset classes with low correlations to other asset classes. Lastly, many are afraid of fiat currencies being influenced by the government or devalued by self-absorbed politicians.”
It is this last item that could be more important than it seems at first.
“People are catching on to the irresponsibility of the government and Federal Reserve’s monetary policy and they’re looking to mitigate the risk of their inevitable failure,” says Nick Saponaro, CEO of Divi Labs in San Diego. “Plain and simple, people are waking up.”
Are they waking up, or are they merely going through an anxiety-producing “swinging for the fences” phase?
“Retail investors are waking up to the Ponzi Scheme that is Social Security and every government safety net, which doesn’t work if population growth slows,” says Eddie Yoon, Co-Founder of Category Pirates and Founder of EddieWouldGrow, LLC in New York City. “They are realizing that no one will look after them, so they need to take action themselves.”
So, we’re remaining in the growth phase with regard to Bitcoin et al. It will take some time for all the gears to fall into place before any reliable predictions can be made regarding their impact on other asset classes.
“As cryptocurrencies become more mainstream through retirement investment options and by being accepted as payments as well as through many other means, the overall market matures and becomes more validated,” says Zak Killermann, Fintech & Crypto Expert at Finder in Denver. “Cryptocurrency, as a market, needs mainstream adoption to continue to grow and flourish — and retirement accounts are just one aspect of that adoption to push them forward.”