Now that we’ve seen one of the biggest proponents of Crypto appear on Saturday Night Live, I felt compelled to write about something I don’t usually talk about. 

First, I’d like to clarify that what I’m about to write does not include short term trading.  For example, if you believe that there is going to be a large move in Bitcoin in the next 12-18 months, you can trade it long or short (depending on your sentiment) and not hear one negative word from me.  You could also trade some of the stocks that track it, or some other type of crypto currency.  If it is short term, it is a perfectly viable thing that will likely give you a lot of movement one way or the other. 

Also, I’m not talking about blockchain technology.  There is a lot to be said for that.  It has great possibilities for our future as a society.

What I’m talking about is the fad that is going to go away within the next few years.  That fad is crypto currency.  I say it is a fad for several reasons….

1.  NFL players are requesting to be paid in Bitcoin (why don’t they just buy it with dollars after they get paid)?
2. Institutions are starting to legitimize it after it has already had a huge run.
3. It is being talked about on Saturday Night Live.
4. This is resembling every other bubble I’ve seen in my nearly 20 years in this profession.
5. Governments like to control money and Bitcoin doesn’t go well with that.

I want to start by talking about the NFL players.  There is an old expression that whenever cab drivers, barbers, waiters, etc. start to talk about stocks, that it is a good sign that we are at a top in the market.  While I have absolutely no disrespect for NFL football players, I have no idea why they simply just didn’t get paid in dollars and buy their own Bitcoin.  There are only two reasons that I can think of for that.  The first is that they were given some bad information.  In other words, they perhaps thought that they would have some type of tax advantage if they were paid in Bitcoin.  Guess what, they don’t!  The second possible reason is the one that makes me a bit more concerned of this overall fad.  That reason is that they wanted to use their celebrity power to hype their investment.  In other words, if they can inspire others to buy Bitcoin, then it will only help their cause as they already have a lot of it.  I don’t have any moral issue with that, but as a potential investor, it is a huge red flag for me. 

Let’s talk about institutions.  A majority of them were not fans of Bitcoin until recently.  It is becoming something that they are not able to ignore.  They are in a position where they have to have some type of exposure to it as it is becoming more of a mainstream thing.  Thus, they are doing what is called “forced buying”.  Whenever that happens, it typically doesn’t end well.

In regard to Elon Musk, I would put him in the category of NFL players.  Yes, he has accomplished some amazing things in the business world.  However, when there is this much hype about a Saturday Night Live appearance and an investment is talked about, I believe it is not a good thing for the long term.

Also, I’ve lived through a lot of bubbles.  I’ve seen oil go through 100, I’ve seen silver run through 50, I’ve seen minimum wage employees get housing loans they had no business getting, and I’ve seen all of those things correct themselves.  There have been other major events like that in the last 20 years, but those are just ones off the top of my head.  At some point Bitcoin will be next.

Finally, governments like being in control of currencies.  At first, they (all of the super powers, not just the US) will try to regulate it.  When they realize what a pain in the butt that is, I believe it will be “dealt with”.  Does that mean that I think it will be criminalized like some places are doing?  No.  I believe that policies will be made to where it won’t be a viable thing for the long run.  While I don’t believe it will get this far, if it does, this is my predicted end point.

For more information on what I do as a financial advisor, send me an email….mtosaw@stcharleswealth.com.