By Tim Courtney, Chief Investment Officer
Cryptocurrencies made headlines recently with the Luna crash, which completely devalued the coin, and months of record volatility that left investors with valuations lower than expected.1 In response, we’ve received many questions from clients about our methodology and recommendations, which we will aim to address as part of this commentary.
As discussed in last week’s commentary, we consider cryptocurrencies as speculative assets because they produce no cash flow and their price is solely determined by supply and demand. However, although cryptocurrencies have no intrinsic value on the surface, there is a valid use case for them as they are easily transferable assets with constrained supply. Using blockchain technology, digital funds can be securely moved outside the traditional financial system and provide parts of the world with limited banking services access to currencies.2
While there are positive uses for cryptocurrencies, they are also highly vulnerable to scams, skewed trading patterns and market saturation. MonkeyPoxInu is the latest scam that caused investors to lose over $400 million in a matter of days before bottoming out.3 Although Bitcoin has a limited supply, there are tens of thousands of other cryptocurrencies, with a large portion being no longer active. 4
As with any endeavor, it helps to be first to market with the latest product, service or solution. However, as history has shown us time and time again, the first doesn’t always become the consumer’s favorite. In terms of cryptocurrencies, it’s very likely there will be viable solutions to the current problems impacting users and investors, but we are not there yet.
Instead, this period surrounding the speculation in cryptocurrencies is reminiscent of the early days of the internet. When many dotcom companies came into existence, a good portion ended up being scams or carrying no value. In a parallel, cryptos are at this stage with more than 19,000 currencies in existence, and many with little to no valuation. 4
As such, it’s beneficial to have this landscape of cryptocurrency investors collectively working to try to bring value to the economy, and even our lives. The latest events in the cryptocurrency world are showing the market at work. We have to be aware that as the market is churning, the earliest doesn’t always mean the best. Not all companies first to market make for wise investments.
Because of existing problems with the current generation of cryptocurrencies, we are not ready to recommend adding these to portfolios. As investors consider providing capital to cryptocurrencies, it’s essential to understand the risks and ensure your portfolio is well-diversified. If you have any questions, please contact your Exencial advisor.
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971