Excerpts from an article at MarketWatch:
"...argument that bitcoin and other cryptocurrencies would somehow “diversify” your 401(k), IRA or other retirement accounts, because they would perform as asset classes differently from stocks, bonds and the like. Such arguments can be dangerously seductive, because they can be technically true without being helpful. For example, lottery tickets are a “diversifying” asset, because the returns on a fistful of lottery tickets have absolutely no correlation with, or connection to, the stock or bond markets. But that doesn’t change the fact that lottery tickets are terrible investments.So it was timely that not long ago finance professors Luciano Somoza and Antoine Didisheim of the University of Lausanne and the Swiss Finance Institute produced a research paper, “The End of the Crypto-Diversification Myth,” that exploded this fallacy.“One of the key rationales for the inclusion of cryptocurrencies into long-horizon portfolios is the promise of diversification from the stock market,” they write. “Indeed, since none of the suggested—and much debated—fundamental values behind crypto-assets have a clear relationship with equity returns, it is reasonable to assume that the two asset classes should be uncorrelated.”Or rather, they add, it was reasonable to think that. Until the last couple of years. Because, they report, “since 2020, the correlation between bitcoin and the S&P 500 has been consistently positive, reaching values as high as 60%.”..It is hardly a coincidence that bitcoin peaked in November last year—just around the same time as the Nasdaq Composite. Or that it plunged for the first half of this year, along with the Nasdaq and the S&P 500. Or that it has rallied somewhat since mid-June—again, with the stock market... Turns out it has behaved just like a tech stock on speed... It’s just been yet another speculative, leveraged gamble on the tech bubble.
More, including reasons for the correlation, at the link.
Cryptocurrencies are a fraud. They are not a currency, and they are not investments. They are simple gambling. They are gambling because they have no intrinsic value. They are worth whatever you're willing to pay for it, and if the price collapsed you have nothing.
ReplyDeleteCyrptocurrencies claim that they are a currency, but almost no one accepts them because their value changes constantly - a necessary requirement for a currency: price stability. So then they try to present themselves as an investment, but that is only true is you accept that investing is gambling because there is nothing that can predict the value of cryptocurrencies other than the number of people willing to buy or sell at a certain moment. You can't even sue if you feel like you've been defrauded after buying cryptocurrencies, because they are completely unregulated.
If you want to gamble with your money, fine. But don't pretend you're doing anything serious with our money if you buy or invest in cryptocurrency.