As a private-capital investor who also manages his own personal portfolio, David Homonoff has always watched the market with close attention.
When he saw the dollar value sink in late summer 2020, he sought to offset potential losses by staking claim in a new asset: Bitcoin.
Homonoff, who is based in East Greenwich, bought about $15,000 in Bitcoin – not the first investment he’s made in the cryptocurrency but much larger than before.
“I look at it primarily as an inverse dollar play,” he said, adding that he thinks of Bitcoin less as an ultra-secure form of digital money and more as an investment commodity that, in part thanks to its perceived scarcity, has increasing value, especially amid the rollercoaster economy ushered in by COVID-19.
After reaching an all-time high of more than $40,000 per coin in early January – the peak of a run that began in November – the high-profile cryptocurrency tumbled more than 13% in days directly following the violence in Washington, D.C., on Jan. 6.
To some local investment advisers, Bitcoin’s abrupt rise and fall points to why cryptocurrency is still too risky. But others point to an expansion of infrastructure to accommodate cryptocurrency, along with backing of big-name institutional investors, as evidence that cryptocurrency is an asset class worth the risk.
‘People really understand the story this time around.’
RIA BHUTORIA, Fidelity Digital Assets research director
A 2020 Fidelity Digital Assets survey found that 60% of investors said alternative investments outside traditional equity, cash and income categories should be part of a portfolio.
Indeed, alternative investments have skyrocketed from 6%, or $4.8 trillion, of the global investable market in 2013 to 12%, or $13.4 trillion, in 2018, with predictions that these types of investments may reach 24% of the market by 2025, according to the Chartered Alternative Investment Analyst Association.
The pandemic had a “massive impact” on that interest, said Ria Bhutoria, Fidelity Digital Assets research director. Near-zero interest rates, “unprecedented” quantitative easing and other interventions by central banks worldwide have forced even conservative investors typically wary of risky assets such as cryptocurrency to recalibrate their portfolios, Bhutoria said.
Fidelity Digital Assets offers a platform for investors to store and trade cryptocurrency, including its own Bitcoin fund launched in August, but the company does not give investment recommendations. Still, Bhutoria said the maturation of the market and increasing number of channels through which investors can mine or trade Bitcoin were “encouraging trends.”
She acknowledged that the currency’s history was a volatile one. But to compare the meteoric rise and crash of Bitcoin’s value in 2018 to its current market swings would be a mistake, she said.
“In 2017 and 2018, Bitcoin was a reserve asset of the cryptocurrency ecosystem,” she said. “People were allocating Bitcoin just to participate in other investments. ... People really understand the story this time around, versus just making an investment.”
Gary Friedmann, vice president and portfolio manager for Rockland Trust Co.’s investment management group, offered a different take. In his view, the rising value of and interest in Bitcoin was still largely a function of retail investors taking a gamble, driven by “speculative fervor” and the attraction of a limited supply of coins left – roughly 19 million of the 21 million cap are now in circulation.
“It’s a beauty contest,” he said.
Jason Siperstein, president and wealth adviser for Eliot Rose Wealth Management LLC in West Warwick, echoed Friedmann’s concerns.
“You want something that’s a proven asset class versus just speculative,” Siperstein said, adding that while investment advisers can look at metrics such as price-to-earnings ratios for stocks and starting yields for bonds to predict future performance, cryptocurrency has no such traditional indicators.
Siperstein hesitated to recommend it as an investment. His company doesn’t actually invest in cryptocurrency on behalf of any of its clients. Few advisers in the state or region do, he said.
But to dismiss its future value as an asset class would be a disservice to his company and clients, he said.
Ronald W. Kent Jr., president of Spinnaker Asset Management Inc. in Warwick, also noted the merits of cryptocurrency as a way to hedge against a falling dollar and Federal Reserve economic controls.
He recommended that less than 2% of a retail investor’s portfolio should go to cryptocurrency, though institutional investors more able to handle volatile swings in value through the future or options market could put in more. Younger investors who have longer investment horizons could also see more value in the nascent asset class.
Homonoff set a 5% cap on his Bitcoin portfolio investment, although he said that as the volatility declined, he might allocate more.
“I generally want to be in lower volatility asset classes, but I also want the return like any investor,” he said.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.