By Rick Waechter, Founder

One of the advantages Old Peak has, compared to wealth management behemoths like Fidelity, Schwab, Morgan Stanley, Wells Fargo, etc., is that we can be brutally honest.

We don’t have large committees which weigh the nuances of every decision or tabulate the lost revenue when we don’t hop on the latest bandwagon. We can strip issues down to their core and ask ourselves: does this make any sense?

So, to cut to the chase: there is no investment case for Bitcoin or other cryptocurrencies.

First, let’s remind ourselves of the investment case for stocks, bonds and other traditional vehicles. While reading this, please compare them with crypto.

• Stocks are a legal claim on a portion of a company’s cash flows and assets. The value of a share will fluctuate, sometimes significantly. But except in the rare case of bankruptcy, there is real value. And when you own a diversified mix through an ETF or mutual fund, you minimize individual stock risk.
• Bonds are a promise to pay back your principal with interest, by a borrower with resources to meet that promise. Occasionally, a borrower will default. But that is rare, and if you buy high quality bonds, the risk is even lower.
• Cash is a store of value issued by a government which has financial resources from, for example, taxing, licensing, or ownership of land.
• Real estate has inherent value. You can build a house on it. You can build an office building or factory on it. You can farm on it. I could go on.

Now let’s consider some investments generally considered riskier.

• Private investments like venture capital, private equity, private real estate, or private credit are just like their public counterparts listed above. They are typically riskier but possess the same fundamental characteristics.
• Collectibles like gold, art and antiques have value from the pleasure they give to the viewer / owner, usually from their beauty.

Now, crypto. I have scoured the internet for reasons to own crypto. The most cited reasons are below.

• It has gone up a lot over the past 10+ years. This is very true. But chasing past performance is typically a great way to lose money.
• There is limited supply of any cryptocurrency. But that is relevant only if the asset has inherent value. My dog, now 11, is likely to poop only 1,000 to 2,000 more times in her life. That does not make her “gifts” somehow valuable.
• Crypto is a diversifier for someone with a large amount of stock. This is true. But it avoids the question, what is the underlying value? It’s easy to diversify. But it’s harder to do it wisely.
• Crypto is a hedge against inflation. The implication is that a currency like the US dollar may lose value. That risk is real. But how can Bitcoin or another cryptocurrency be a hedge against anything when the value swings wildly? For those of you not watching, Bitcoin’s price has plunged over 20% over 1- to 2-month periods on four separate occasions in the last four years.
• The technology behind it (called blockchain) is extremely useful. I suspect this is true. But that does not make cryptocurrency inherently valuable. The internet was an amazing innovation when it became widespread in the 1990s. But the value creation came from companies like Amazon figuring out business models that worked.
• Crypto operates outside the established financial infrastructure. So, there is less friction from regulation and perhaps lower costs. There is also greater risk – whether because it’s easier to steal, lose your digital wallet, or see your crypto go down in value by 20% in a month. Honestly, this characteristic is primarily useful to criminals and rogue states.

It is sad that we live in a time when powerful companies and powerful people are unwilling to call a fraud by its name -- either because there’s money to be made through the greater fool theory or because they don’t want to look uncool.

Crypto is a scam. Don’t fall for it.