Peter McGahan: Crypto is not an investment, it’s a punt on a ‘valuation’

Bitcoin logo surrounded by geometry rulers and drawings.
Larry Fink, the top man at Blackrock, supposedly the biggest asset manager in the world said crypto is “an asset class that protects you”. (Getty Images/iStockphoto)

When I cover cryptocurrency, it feels like that Bisto advert when I type ‘Crypto…ahhhh’.

Personally, I don’t understand the ingredients of one (no-one can) and can neither pronounce nor draw many of the ingredients of the other (Bisto), so my ‘ahhhh’ is pronounced differently than that soothing advert.

I’ve had many requests for information on crypto, including from the young person who, not only had her money stolen, but her family’s money that she introduced to the ‘nice man’.

I’ll cover crypto over the next couple of weeks so if you have any questions please do let me know.

There is a purpose to crypto which I will come to. But first things first, it’s not an investment.

It’s a punt on a ‘valuation’ that you get out of before it goes wrong to record a gain. It’s wild in its valuations which is the biggest clue and I’ll use the most trusted coin to demonstrate that.

Consider: In the year from December 2017, it dropped 84%. In 2019, over a nine-month period, it plummeted 56%.

In 2021, it was down 50% over three months. In early 2022, it was down 45% over a two-month period, and down over 75% over that year as a whole. September 2023 witnessed a 17% one month fall.

On January 11 this year, it was announced that 11 new exchange traded funds (ETF’s) would be approved by the SEC in the US - the hype made everyone think it was going to be the dawn of a new era for liquidity. It fell a further 15% in the next 11 days.

From its low on January 22 this year, it boosted 29%. Now, I don’t know if you have a friend with a personality like that, but a bit of yoga and meditation wouldn’t go amiss, would it? That’s pure Russian roulette.

So, it’s not an investment. But it has a purpose, however.

It’s highly likely that the reasons why many looked to crypto currency in the first place (anonymity and decentralised control) will be negated by its development.

However, even the most critical or cynical experts in the field of finance altered their thinking after the government overreach during Covid.

For them, crypto was now clearly a challenger and somewhere to go with your money where governments stepped over the line, at least where you could make payments.

If you want to hold governments with overreach to account, you need to organise and demonstrate, and you need money to do that.

When accounts were closed to curb demonstration, this was seen as a complete overstep and rightly so. Even the most conservative on crypto saw these as a leap toward totalitarianism.

Larry Fink, the top man at Blackrock, supposedly the biggest asset manager in the world, said crypto is “an asset class that protects you”. Hmmm.

Therein lies the value – somewhere you can go to if all hell breaks loose, and of course make payments and protect from the normal currency plummeting or disappearing.

This is true of Bitcoin and crypto generally, but as a medium of exchange rather than excessive ‘value’ it may have, because they are difficult to ‘mine’.

For those who saw the SEC’s approval of ETFs as a win, it isn’t. The chairman announced he was pretty much forced to approve them off the back of a court ruling that the SEC’s long-standing opposition to Bitcoin ETFs on the grounds they could be subject to fraud and manipulation, was arbitrary. Expect seven more to be approved.

The chairman has clearly warned that it is volatile and filled with ‘fraud, bogus coin offerings, Ponzi and pyramid schemes and outright theft where a project promoter disappears with investors’ money’.

Peter McGahan (Mal McCann)

Peter McGahan is the chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question for Peter please call 028 6863 2692.