JM: The regulatory environment for cryptocurrency as a whole, has been sort of haphazardly cobbled together over the last decade or so. There isn’t really a unified framework for thinking about cryptocurrency from a regulatory perspective. And I think the cleanest example of how that lack of a unified framework impacts the crypto industry is to think about how cryptocurrencies are taxed. Because in some cases, cryptocurrencies are treated like assets, meaning they’re treated like stocks or bonds or anything that you own that you may then go sell. However, there are other ways to get cryptocurrency outside of purchasing it directly or trading for it. Some companies pay their employees in crypto. Some people generate cryptocurrency through mining activity. Well, now it’s no longer treated as an asset. It’s treated as regular income. We’re talking about the same token getting taxed in two distinct different ways. I think it’s a really good example of how this regulatory environment can be somewhat confusing. And confusion always leads to barriers to entry, to restrictions. Now what we’re seeing happen in this administration, is a move to put together a comprehensive regulatory program that fully embraces all aspects of cryptocurrency and doesn’t leave a lot open to judicial or regulatory interpretation. That’s really helped to shake up the landscape.
Does crypto deserve a place in portfolio construction?
JM: Crypto is so big and growing so quickly that I have a very hard time imagining that it’s going to go away anytime soon. And for that reason, I think we have to at least consider it as a component of asset allocation. That said, Bitcoin’s whole purpose is that it is supposed to be an alternative to fiat currencies. But for Bitcoin to be considered a currency, it would have to be an effective store of value, and it would have to be an effective medium of exchange. And, at least from where we are right now, Bitcoin achieves neither of those goals. And so I don’t think Bitcoin plays a role in long-term portfolio construction. But there are other tokens out there that may have more interesting use cases. Decentralized finance, for example, is a big trend. You might also want to take advantage of the technology that pins Bitcoin and other cryptocurrencies, this blockchain technology. You can invest by buying the token that is associated with that blockchain. You can also invest by buying the securities of companies that are investing in blockchain. Banks are already using blockchain. Big retailers. So if you are going to be an investor in this space I think you really have to do a lot of work otherwise you are setting yourselves up for some potential disappointment.
And finally, what’s the bottom line on investing in cryptocurrency in the current moment?
JM: The bottom line for investing in crypto is that you cannot ignore it, but if you do decide to incorporate it into your portfolio, you need to know exactly what you’re owning, and you need to have an iron stomach. You know, almost treat it like you’re going to Vegas and betting it all on black. Maybe it hits and it makes you a fortune. More likely than not it won’t, and you lose your money. Invest only what you’re comfortable seeing disappear entirely. And I think if you approach cryptocurrency with that mindset, you’re going to remove a lot of the potential for disappointment in the event that something doesn’t necessarily go your way.
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