It’s been a challenging year for Wall Street. We’ve witnessed the quickest bear market decline of at least 30% in history, as well as the most ferocious comeback of all time, with the benchmark S&P 500 taking less than five months to reach new highs.
But one investment that hasn’t been phased by the coronavirus pandemic or heightened volatility is the cryptocurrency bitcoin. On a year-to-date basis, through Wednesday evening, Oct. 14, bitcoin was up just shy of 60%.
Why is bitcoin outperforming in 2020?
Why does bitcoin continue to outperform equities? For one, there’s the idea of scarcity. Only 21 million bitcoin tokens can be mined, which creates a level of scarcity that pushes up the value of these digital tokens.
Another reason bitcoin has done so well is the expectation of a digital revolution. This is to say that bitcoin buyers believe the utility of paper money has come and gone. This could prove somewhat accurate with the pandemic highlighting the potential for physical cash to be a carrier of harmful germs. With the rise of peer-to-peer payment platforms, bitcoin looks to become the superior digital currency.
Bitcoin also benefits from its first-mover advantage in the cryptocurrency space. It was the first digital token to catch on with investors, and happens to be the largest on a market-cap basis by a significant amount (it’s five times the size of Ethereum, the second-largest cryptocurrency by market cap). Today, bitcoin serves as the intermediary asset on a number of crypto investment platforms if you want to purchase a less-common token (i.e., anything not named Ethereum or Ripple).
Buying bitcoin could be a big mistake
But as good as bitcoin has been for investors in 2020, my blunt opinion is that it’s a terrible investment. Here are 10 reasons you should avoid bitcoin like the plague.
1. Bitcoin isn’t really scarce
First of all, bitcoin is only as scarce as its programming dictates. Whereas physical metals, such as gold, are limited to what can be mined from the earth, bitcoin’s token count is limited by computer programming. It’s not out of the question that programmers, with overwhelming community support, could choose to increase bitcoin’s token limit at some point in the future. Thus, bitcoin offers the perception of scarcity without actually being scarce.
2. It has a utility problem
The king of cryptocurrencies also has a utility problem. To date, only 18.51 million bitcoin tokens are in circulation, with an estimated 40% of these held by small group of investors. Even considering the fact that fractional token ownership exists, roughly 10 million to 11 million tokens in circulation aren’t going to go very far. For context, global gross domestic product was $81 trillion in 2017. Meanwhile, bitcoin has approximately $114 billion to $125 billion in tokens freely circulating and not held tight by investors. There’s minimal utility here.
3. There’s a low barrier to entry
Bitcoin may enjoy first-mover advantage at the moment, but the barrier to entry in the cryptocurrency space is especially low. All it takes is time and coding knowledge for blockchain — the digital and decentralized ledger that records transactions — to be developed and a digital token to be tethered to the network. There’s nothing unique about bitcoin’s underlying blockchain that other businesses couldn’t one-up.
4. Few (if any) tangible means to value bitcoin
Another beef with bitcoin is that there’s no tangible way to value it as an asset. For instance, if you want to buy shares of a publicly traded company, you can scour income statements, its balance sheet, read about industrywide catalysts, and listen to management commentary from recent conference calls and presentations. In other words, you can make an informed decision.
With bitcoin, there is no tangible data for investors to wrap their hands around. There’s transaction settlement times and total circulating token supply, but neither of these figures tells us anything about the value or utility of bitcoin.
5. Fiat currencies may work on blockchain
I believe investors are also placing their faith in the wrong asset. Over the long term, blockchain technology is where the real value lies. Blockchain can be used to reinvent supply-chain management and expedite overseas payments. But when folks are buying into bitcoin, they’re gaining ownership in digital tokens with zero ownership of the underlying blockchain.
To build on this point, companies are also testing blockchain that’s tethered to fiat currencies. For example, Mastercard (NYSE:MA) was awarded a patent in July 2018 “for linkage of blockchain-based assets to fiat currency amounts.” This implies there may not be any need for a made-up digital token to be used at all on blockchain networks.
6. Blockchain is years from being mainstream
A sixth issue is that blockchain is still years away from gaining real relevance. Three years ago, when blockchain companies and cryptocurrency stocks were the hottest thing since sliced bread, it was expected that blockchain technology would be quickly adopted. Little did investors foresee the Catch-22 that would arise. Specifically, no businesses are willing to make the costly and time-consuming switch to blockchain without the technology being broadly tested — yet companies aren’t willing to make this initial leap to test the technology and prove its scalability.
In short, blockchain is years away from being a mainstream technology.
7. Fraud/theft is a serious issue
By no means are cryptocurrencies the only asset to be hacked by thieves, but there are serious fraud and theft concerns that accompany bitcoin. For instance, novice bitcoin investors may not understand the need to store their tokens in a digital wallet, thereby leaving them susceptible to theft by hackers.
Additionally, it’s been hypothesized by numerous blogs and publications that North Korea has turned to bitcoin mining and theft to funnel money into its isolated economy. Bitcoin is commonly viewed as the “currency” of choice for criminal organizations.
8. There’s no regulation
Bitcoin is also an unregulated asset. Though this lack of regulation is actually a selling point for today’s crypto investors given that it provides some degree of anonymity, it’s bad news if something ever goes wrong. Since the majority of cryptocurrency trading and transactions occur outside the borders of the United States, the Securities and Exchange Commission is very limited in what it can do if your digital tokens are ever stolen.
9. The tax situation is a nightmare
If you think preparing your federal income taxes stinks now, try preparing them after investing in and/or using bitcoin in any transaction. The Internal Revenue Service expects you to report capital gains and losses tied to investment activity, as well as gains and losses associated with purchasing goods and services.
For example, if you bought a single bitcoin token at $11,000, then used a fraction of your bitcoin to buy a new smartphone for $1,000, you’d have to calculate the value of your bitcoin used at the time of the transaction and recognize capital gains or losses relative to your cost basis. It’s a gigantic headache.
10. All bubbles eventually burst
Last, but not least, all next-big-thing investment bubbles eventually burst. No matter how excited investors are about bitcoin and its underlying blockchain, history suggests it won’t be enough to match lofty expectations.
Mind you, we’ve already witnessed multiple 80%-plus declines in bitcoin throughout its history. Extreme volatility is a given with digital currencies like bitcoin, and history would suggest that significant downside from its current price is a near certainty as well.
Source: – The Motley Fool
Iveson says $17.3-million federal housing investment puts Edmonton on the right track to end homelessness – Edmonton Journal
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“The goal was to create urgency around accommodation for everybody this winter and urgency around bringing the right kind of units online in a matter of months rather than years and so I think we’ve accomplished that with the federal government’s announcement,” he said. “I think we’ve made considerable progress within the last eight or nine weeks and anyone who wants to come in from the cold will have a place to do it within that 10-week timeframe. So I’m pleased with how it’s come together.”
Now that the funding is secured, Iveson said the city will work with social agencies over the next few weeks to “go shopping” for the right sites.
“We’ve been in discussions with a number of hoteliers and also looking at some of the modular sites that the city had previously approved so the money will move quickly and as soon as we have a decision point on that we’ll bring that forward, but our goal will be to move that within weeks,” he said.
Iveson said the city will also be aggressively pushing for a portion of the other $500 million that will be granted to specific projects. A few projects are already in the works, Iveson said, pointing to four planned supportive housing complexes that will provide 150 units. Projects under this stream must be completed within one year of a signed agreement.
The city is working to open up a 24-7 temporary shelter at the Edmonton Convention Centre by Friday, which will accommodate up to 300 residents overnight. The Mustard Seed and Hope Mission are also looking to expand their overnight shelters in order to serve more people at larger spaces while maintaining appropriate physical distancing amid the COVID-19 pandemic.
Investment approaches to continued uncertainty – Investment Executive
“The average client portfolio is riskier today than it has been historically because you’re not getting the natural diversification” that bonds provide, said panellist Luke Ellis, CEO with London, U.K.–based Man Group plc, a global investment management firm with offerings that include quantitative portfolios. As a result, asset allocation must be reconsidered, he said.
Ellis also warned of the challenge of identifying winners and losers in a world of massive government spending. The market is not efficient when fiscal policy helps support weak companies, he said.
Neil Cunningham, president and CEO with Ottawa-based PSP Investments, one of Canada’s largest pension investment managers, said PSP is reducing government bonds in portfolios in favour of emerging market debt, private credit and high inflation–linked infrastructure projects with little operating or credit risk. Adding in these assets increases risk, so the firm reduces equities to stay within risk limits, he said.
More generally, as a long-term investor, Cunningham aims to distinguish between noise and longer-term trends. The U.S. election, he said, is noise: “We’re much more concerned with the trends that get accelerated by Covid,” such as de-globalization, greater e-commerce adoption and working from home.
Cunningham also suggested investors follow the long-term trends of ESG and diversity and inclusion because governments, employees and customers will consider these factors as they legislate, work and shop.
Mohammed Alardhi, executive chairman with Manama, Bahrain–based Investcorp, a global manager of alternatives, highlighted the need to diversify within sectors and geographies, noting that investors in oil-producing regions were particularly hard hit by the pandemic.
Cunningham described investing in a U.K. pub business just months before the economic shutdown. No one expected a business that stayed open during the Blitz to close, he said. The lesson: “Unless you diversify both geographically and by sector, you’re bound to get hit by something you didn’t expect.” Unexpected downturns also require investors to ensure they have sufficient liquidity, he said.
Panellists also considered trends arising from geopolitics.
The outcome of U.S.-China tensions will be key for many portfolios over the next decade, depending on the position investors take, Ellis said.
For example, should China be a small part of a portfolio because of the country’s restrictions on foreign businesses, or should it be a large part as the eventual largest economy in the world?
As U.S.-China tensions put pressure on other governments to pick a side, investors will face an increasingly challenging environment, Ellis said.
Cunningham said his firm was increasing allocations to Australasia and emerging markets based on long-term geopolitical trends that will see those economies benefit.
The outlook for investment in Canada
Ian McKay, CEO with Ottawa-based Invest in Canada, also spoke at the session and provided a positive outlook for foreign investment in this country despite an overall negative forecast for foreign investment flows.
Global foreign direct investment (FDI) is expected to decrease by up to 40% this year and by a further 5–10% in 2021, according to the World Investment Report 2020 from the United Nations Conference on Trade and Development.
This would bring FDI flows to “the lowest levels we’ve seen in over 20 years,” McKay said, which will motivate governments, investment funds and agencies to reassess their strategic plans and investing criteria.
As they do so, Canada is proving attractive.
Since the pandemic, Invest in Canada has experienced a spike in interest from global investors in three sectors in Canada: life sciences, associated with a vaccine for Covid-19; the digital economy, in which Canada is a leader in artificial intelligence; and clean technology, such as hydrogen or electric cars and renewable energy.
“In Canada, we have the right ingredients for that — the raw materials, highly skilled workforce, innovative ecosystems and global market access,” McKay said.
Fundamental factors also favour Canada when it comes to attracting investment, such as political and economic stability, an open mindset to free and rules-based trade, and a global supply of workforce talent, McKay said.
Despite the forecast for foreign investment flows, “we are certain that the future is bright for those investors who continue to build and expand their operations in Canada,” McKay said.
Foreign Investment Plummets During Pandemic, Except in China – The Wall Street Journal
Foreign direct investment in China largely held steady during the first half of this year, even as investment inflows into the U.S. and European Union plummeted, in a fresh sign that the world’s second-largest economy has suffered less damage from the pandemic.
Globally, the monthly average for new investments for the first half of the year was down almost half on the monthly average for the whole of 2019, the largest decline on record, the United Nations’s Conference on Trade and Development said Tuesday. But while foreign investment in the U.S. and European Union fell by 61% and 29% respectively, inflows to China were down by just 4%. China attracted foreign investment totaling $76 billion during the period, while the U.S. attracted $51 billion.
The U.S. has long been the top global destination for businesses investing overseas, while China has long ranked second.
Unctad said the modest nature of the decline in foreign investment to China was surprising. Back in March, when China was the epicenter of the pandemic with significant parts of its economy in lockdown, Unctad forecast that it would be the big loser, and expected global flows of investment to fall by 15% across 2020.
However, China’s economy reopened in April just as the U.S. and Europe were in lockdown, and the country has since contained the virus with only localized and short-lived restrictions. By contrast, the U.S. and Europe have seen resurgences in infections that have slowed their recoveries. In the three months through September, China’s economy had already exceeded the levels of output recorded in the last quarter of 2019, according to data out last week.
The resilience of foreign investment in China appears to confound earlier expectations that businesses would seek to reduce their reliance on the country as a key part of their supply chains. But James Zhan, Unctad’s director of investment and enterprise, said it was too early to reach that conclusion.
“One of the main reasons for reconfiguration of global supply chains is to increase resilience, which requires backup plans and redundant capacities,” he said. “A more practical approach companies can take would be building additional production bases outside of China, which means new investment to other countries instead of divestment from China or moving production out of China.”
Across all developed economies, inflows of foreign investment were down 75% in the first half from the 2019 monthly average to total just $98 billion, a level last seen in 1994. In some cases—such as the Netherlands and the U.K.—that decline took the form of a reduction in loans from the parent company to its overseas subsidiaries, which are counted as foreign investment.
With tensions running high, Washington and Beijing have pushed to decouple technology and trade. But American financial firms including JPMorgan and Goldman Sachs are doubling down on investing in China and expanding headcount. Photo Composite: Crystal Tai[object Object]
“In times of crisis, some multinational enterprises would like to keep funds close to home,” said Mr. Zhan. “Fear that Covid-19 and the quest for funds could lead to tax increase may also accelerate the intra-firm capital movements.”
Foreign investment in developing economies proved more resilient, falling by just 16% to $296 billion.
Unctad said there were signs of a pickup in investment during the three months through September, and it repeated its forecast that flows for 2020 as a whole would likely be 40% down on 2019. But it warned that the second wave of rising infections hitting a number of developed economies could see flows down 50% for the year.
While foreign investment in most countries fell during the first six months, a small number saw an increase. One was Germany, which saw inflows rise 15% to $21 billion, largely due to a small number of foreign acquisitions of existing businesses.
Write to Paul Hannon at firstname.lastname@example.org
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