Crypto, Crypto, Kryptonite
Hello, friends, how are you -- and how’d you do? Did you buy at the right time and, even more important, sell at a better time?
I hope so, because with cryptocurrencies down $1.3 trillion in value since their relatively recent highs (yes, that’s down $1,300,000,000,000 as I write this), for many investors, crypto has quickly become the new kryptonite, sapping us of our superpowers.
Here’s how things looked in January 2021, when I wrote about crypto in general and bitcoin, in particular. Back then, in the post titled “Biden, big tech and bitcoin,” I had a lot of reservations as bitcoin was taking off -- trading above $41,000:
“So, there’s one last head-scratcher this week. While my predictions of stability under the Biden administration will, I hope, come true, there are still some things that defy all logic, thanks to the magic of human emotions and behaviors. At the top of the list, in my book, is Bitcoin.
From MarketWatch.com, “As Crypto Crash Wipes out $1.3 Trillion, Here’s What Some Pros Advise about Buying Bitcoin, Dogecoin, Other Assets” with CoinDesk graphic
In last week’s post, I included a link to a CNBC video illustrating how emotion drives market frenzy and in my opinion, nothing showcases this better than the absurd valuation of Bitcoin (which is valued around $40,000 as I write this).”
I went on:
“Let me say up front that I’m a Bitcoin denier -- I can’t understand the feeding frenzy around something with no tangible underpinnings (like gold), no governmental regulation (like the U.S. dollar) and relatively limited ability to trade for goods or services, which is the basic tenet of currency.”
I tell you this not to point out that I was right (I enjoy being right, but not when I know so many people could be losing their shirts). I tell you this because back then, there was an important lesson, a warning.
I concluded by saying:
“To me, Bitcoin -- with its huge daily swings -- is the epitome of the gamification of the markets. It’s a toy of the techies, many of whom have the money to play, while average people have far more at risk. It’s all volatility, no stability. I don’t see any analysis or logic behind it. And if alternate currencies proliferate, how will values be benchmarked?”
And here we are. One significant reason for the drop is China’s ongoing and recently stepped-up crackdowns on crypto-mining and trading. This put the brakes on investors as well as crypto-miners, many of whom are located in China, which is essentially putting pressure on all sides.
Still, I’m sure that this isn’t the end of crypto, although whether it’s simply a cyclical setback, as some analysts have said, remains to be seen. And to be sure, there are many crypto-curious people who are wondering if this is the right time to jump in, believing that it’s just a matter of time before it zooms up again.
So, too, is there a generational gap with crypto. As this CNBC article points out:
“The next generation of investors are super online -- instead of traditional investments, many Gen Z and young millennial investors, from teens to those in their early 20s, are bullish on cryptocurrency and the technology that surrounds it.
This includes digital coins and blockchains, like bitcoin and ethereum; meme coins, like dogecoin; NFTs, or nonfungible tokens; and DeFi, or decentralized finance.
Some have spent the bulk of their savings on these type of investments: Nearly half of millennial millionaires have at least 25% of their wealth in cryptocurrencies, according to a new CNBC Millionaire Survey. More than a third of millennial millionaires have at least half their wealth in crypto and about half own NFTs.”
From Forbes.com, “As Bitcoin Smashes Through $40,000, Data Reveals What’s Behind the Huge 2021 Bitcoin Price Boom,” by Billy Bambrough, January 8, 2021
We see what we want to see and believe what we want to believe and so sometimes, we create false idols. Still, I have to admit that crypto will likely be with us for a long time.
I also believe that crypto’s rather precipitous drop in value, the increasing roadblocks to mining and trading, greater awareness of its environmental impacts and the first glimpses of government interventions should serve as a reality check.
Residential real estate valuations continue to skyrocket
On this next topic, all I can say is that in comparison to crypto, at least homebuyers have tangibles to show for their sky-high investments. And what investments they have been, my friends. As reported on June 22 in the Wall Street Journal:
“The median existing-home sales price in May topped $350,000 for the first time, the National Association of Realtors said Tuesday. The figure was nearly 24% higher than a year ago, the biggest year-over-year price increase NAR has recorded in data going back to 1999.”
Take a look at this listing I randomly found on Realtor.com:
Here’s a 10-year history of sales and rental information for this property (also from Realtor.com), including a price increase of $154,000 in just three days!
Of course I know that there are expenses that go along with home ownership and it’s not the right option for everyone. Still, when you can have a place to live (or to rent out), double your investment in 10 years and gain tremendous tax benefits along the way, that’s a pretty sweet deal.
I always say that real estate is a great investment -- and that’s why I feel so strongly that we need to help more people participate. There’s nothing that will close the far ends of the wealth gap in the U.S. and frankly, we don’t have to go that far for many of our societal and economic challenges to ease.
Instead, as we move forward through (hopefully) the end of the pandemic and look for ways to grow our economy, creating affordable home-ownership opportunities for more Americans should be a priority.
Even if you worry that you may have overpaid during the frenzy of the last year or so, you’ll have something solid to show for it, as well as equity that increases each month (simply by paying your mortgage, as well as through increased valuation over time), tax deductions and shelter.
Home ownership can go a long way to helping the vast majority of the full spectrum of middle-class people to gain housing stability and financial strength that they can enjoy in their lifetimes and pass on to their children.
