Cryptocurrency has been a popular topic of conversation in the ETF Think Tank lately. That trend continues as we welcome Mark Yusko, the Founder, CEO and CIO of Morgan Creek Capital Management, the advisory firm that manages close to $2 billion in assets. Yusko is well-known as a straight shooter and his timing with everything going on in the crypto space today could not be better.
Yusko starts by explaining that there are four types of people in the financial markets today. There are the investors, whose decisions are based on fundamental factors. There are traders, whose decisions are based on price. There are speculators, who make decisions only because the price is moving. Finally, there are gamblers, which is where he would currently lump in a lot of the GameStop and dogecoin traders. A lot of the bad behavior in the markets today is being justified by having the Fed tailwind and the gamblers can make things dangerous for others if they are reacting out of boredom.
With our discussion taking place the day after a sharp drop in U.S. stock prices during the first half of the week, Yusko is asked how we get people not to panic in these types of environments. He says investors should remember that volatility is their friend, not their enemy. He notes that the VIX and stock prices tend to move in opposite directions, so hedging equities with volatility could be a solution. People need volatility in their portfolio, however, because an investment without volatility is just cash and cash won’t cut it over the long-term.
The discussion turns to cryptocurrency, which Yusko is very bullish on. He mentions his recent call that Bitcoin is headed for $250,000 over the next few years, but says it’s about more than just price targets. True crypto, he says, is all about innovation and everything is eventually going to be on blockchain and run by cryptocurrency. Everything is going to be connected and it is going to be the technology that powers things in the 2020s and beyond. He does warn on what should be considered a cryptocurrency. In reality, there are just a few cryptocurrencies, including Bitcoin and ethereum. These have technological value as a medium of exchange. Most other “cryptos” are merely utility tokens that have little, if any, real value.
The question is asked about how Bitcoin could potentially be used to hedge inflation. He responds quickly by saying what we have today is not deflation. It is a devaluation of the dollar. He points to the rapid rise of government debt and notes that virtually all empires of the past overspend and do so for the benefit of the people at the top at the expense of the lower and middle classes. Governments will overspend to the point that the currency collapses and that is where we’re headed today. The devaluation of the dollar makes Bitcoin look more attractive and moving from fiat into crypto could help protect against the ravages of currency devaluation.
How does Yusko suggest investors approach the current marketplace? Taking advantage of volatile periods will be important, but he also notes that there is no true “passive” investing. Passive, he says, is just slow active since market sentiment drives share prices for some securities higher and then passive indexes react later. He believes we will continue to see the migration from currencies, such as the dollar, over to cryptocurrency because, as he puts it, “fiat sucks”.
This week our guest will be Raoul Pal, joining us to discuss investment strategies, global macro investing, and rum. Sign up here.
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