In February, when bitcoin reached a recent low of about US$62,000, Canadian crypto-asset exchange-traded funds pulled in $150-million as investors tried to 'catch the bottom,' according to National Bank Financial Inc.JUSTIN TALLIS/AFP/Getty Images
Investors who follow bitcoin’s wild gyrations will know the cryptocurrency fell from a record high of more than US$126,000 last October to around US$62,000 earlier this year.
The most recent drop may have some cryptocurrency skeptics wondering if it’s time to jump in and add this wildly volatile asset to their portfolios, but many advisors remain cautious about investing in such an unpredictable asset.
Michael Zagari, portfolio manager at Wellington-Altus Private Wealth Inc. in Montreal, says bitcoin’s price depreciation represents a buying opportunity.
Mr. Zagari includes the cryptocurrency in his model portfolios, with allocations between 5 and 15 per cent. He says he’s adding to positions now. “In fact, I’ve increased my allocation within my models to give us more exposure to bitcoin.”
Mr. Zagari says the timing is “quite compelling,” pointing to a lack of correlation between bitcoin and technology stocks in recent months, and bitcoin gains since the start of the U.S.-Israeli war against Iran.
The selloff that started in the fall was based in part on concerns about an artificial intelligence bubble and a general aversion to the “risk-on” trade, Mr. Zagari says, and “bitcoin just gets sucked into that bucket.”
The selloff “doesn’t have anything to do with the actual adoption of the technology,” he says, adding that the decentralized blockchain technology is the more compelling piece for investors.
In February, when bitcoin reached a recent low of about US$62,000, Canadian crypto-asset exchange-traded funds pulled in $150-million as investors tried to “catch the bottom,” according to National Bank Financial Inc.’s latest monthly Canadian ETF report. In the U.S., investors sold off $1.5-billion in crypto ETFs in January and another $500-million in February.
However, Mr. Zagari cautions against chasing the bottom.
“I don’t think investors should get involved based on just the fact that the price is lower than it was in November, because that’s not a good framework for any type of investment selection,” he says.
Matt Ardrey, portfolio manager and senior financial planner with TriDelta Private Wealth in Toronto, says he has a small allocation of 2 to 4 per cent of bitcoin in the portfolios of his more growth-oriented, high-risk clients.
Many younger clients felt the fear of missing out in the past year or two as their friends invested in bitcoin and the price rose. So, he invested a small percentage in bitcoin ETFs, “and we’ll just hold it,” he says.
For Darren Coleman, senior financial advisor and portfolio manager with Portage Cross Border Wealth Management at Raymond James Ltd. in Oakville, Ont., investors need to ask themselves if they “actually have a story about bitcoin” they’re buying into, or if they’re “a trader of a thing that’s moving.”
“I struggle with an investment thesis independent of what the price is,” Mr. Coleman says. “My problem is I don’t get the business case for it.”
Bitcoin has been touted as a store of value, as a financial advancement with blockchain technology, and as a currency.
“Is it gold 2.0 or is it for transactions … is it Visa 2.0? Which one is it, because it could be either one, but it’s really hard for it to be both,” he says.
Mr. Coleman says bitcoin hasn’t worked as a currency, as its value changes too rapidly and you can’t buy regular items with it. Also, the energy required to process transactions is too expensive.
But bitcoin also hasn’t been a store of value. When investors got spooked earlier this year, the price of gold rose but bitcoin’s price cratered. “It’s not really doing that job very well either,” he says.
Bitcoin has mainly succeeded in terms of brand recognition, Mr. Coleman says: “It has become the Kleenex of crypto.”
Mr. Zagari says investors shouldn’t get involved in bitcoin without understanding what they’re buying. He invests in bitcoin, ethereum and digital asset treasury companies, which hold crypto on their balance sheets.
He also points to legislation in the U.S. to add a regulatory framework to cryptocurrencies and stablecoins that he says will “accelerate the adoption of bitcoin” and boost its price.
Investors who dive in should keep the percentage small, Mr. Ardrey says. But if the volatility will result in sleepless nights, then it’s not the right investment.
Mr. Coleman advises anyone interested in investing in bitcoin now to understand that it’s extremely risky and to “wait for it to balance and find a floor.” He also recommends investing in an ETF versus the digital currency itself.
However, he adds, “You know what really works as an investor? Boring is amazing. Dull is fabulous. Exciting is usually not successful.”