Why crypto is a risky investment strategy

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Yahoo Finance Editor-in-Chief Andy Serwer joins Myles Udland, Brian Sozzi and Julie Hyman to discuss bitcoin investing and the risks associated with cryptocurrencies.

Video transcript

MYLES UDLAND: Alright, welcome to Yahoo Finance Live this Monday morning. Mixed picture for stocks, but all of the action this morning is taking place in the crypto markets. Huge rally on our hands through the cryptoplex. Bitcoin up about 10% at last check, so the inevitable question up 12% here, 38,000 and some changes. The inevitable question, as always with crypto spaces, should you own any? How much should you own?

How would you even do that? In his weekend column, Yahoo Finance editor-in-chief Andy Serwer wrote a bit on this issue. Andy, sure, we’ve had a lot of talk about the price of Bitcoin, what it means, what it doesn’t. I guess I would just start by asking you, what do you think of Bitcoin as part of, to use a strategist’s speech, of a balanced portfolio, of a diversified portfolio, covering all your bases in the financial markets?

ANDY SERWER: That’s a really tough question to answer, Myles. Because unless you, A, fully understand it and B fully believe it, it’s hard to invest money in it, right? And I have questions on those two questions, that is, you know, do I understand? Yes. Is my brain completely wrapped around it? No.

Am I absolutely sure it’s legitimate? Not absolutely sure, so why put money in something like this? I mean, it’s one thing to say, oh, I don’t really understand Tesla’s business model, but they sure make cars. And that leaves aside the question of evaluation.

It’s like, OK, I kinda believe in Tesla. I like cars. They are great cars. I’m just going to save some crazy money, right?

But with crypto, you know, it takes another step, another leap of faith to get there. On the other hand, when you see what’s been done over the last 12 years, boy, do you just shut up just so you don’t have something in there, nothing, a little bit. You know, this is where you have to make a decision, I think.

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JULIE: Well, and what about you, Andy, if you look at the great surge in institutional interest in cryptocurrencies, I think you can probably argue that not everyone believes in the fundamental case that they are trading it based on of price movement. And if it’s good enough for them, maybe it’s good enough for individual investors, although individual investors tend to have fewer resources. But why not throw in some money? I guess the question then becomes, how much does a little bit of money cost? And what is the right amount for individuals?

– Well, that’s so weird, Julie. I mean, look, the tulip bulb mania in the 1600s in Holland worked for a while, until it didn’t. I mean, there wasn’t there, there. Now the tulip bulbs were actually of some value, but it was about 1/100 of what they were ultimately at the top.

And then you look at something, like Dogecoin, which was made like a joke, and has a market value of $ 25 billion, and Elon Musk admitted he had money in it. OK, let’s put that aside. So if you look at Bitcoin and Ethereum, and things like that, this ripple, which maybe has some value, yeah. Should we invest a little money?

I kind of got out, like, yeah, and kind of got out about 1% – so for me, that – – of your investment portfolio. So this stuff gets pretty close to my crazy money mind. So if you have $ 100,000 to invest, you put $ 1,000 in it. If it’s going to be worth $ 5,000, in 10 years, you’re a hero. If it hits $ 0, you’ll be fine.

BRIAN: Andy, you’ve spent the last decade writing a lot about Fang stocks. But now these companies have giant market caps. It is hard to believe that they will increase at the same rate as over the past decade. Are the likes of a Coinbase, a SoFi, a riot blockchain, are these the next Fang stocks of the next decade?

– Yeah, it could be, and you know, Brian, that was another point in my article. I mean, Myles Udland is fed up with me saying great tech is our life’s craft. And I realize, yeah, I’ve been saying that for a long time now, like, you know, 25 years. So, is it possible that the soft part of this trade is over, especially for the Fangs when they have the tyranny of many working against them, A and B, with the government increasingly scrutinizing their business models? Which isn’t to say the Fangs are over, but is the best part of this trade over?

And do these new crypto-oriented games have a better place in terms of a long-standing uptrend? I mean, what I described about Bitcoin is that it goes up, it goes down, it goes up, it goes down, but it’s still going from the bottom left to the top right. Isn’t that the very definition of a buy and hold, is it? A long-term investment, and I would answer unequivocally, yes, except that I’m not entirely comfortable with the very foundation of the financial asset.

So that makes things a lot more complicated. If I was, in other words, if it was Apple, Nvidia or Tesla, I would say put 5%. But because I don’t really understand, to be completely honest, I mean, I understand, but I don’t really understand. I am more conservative, much more conservative here.

MYLES UDLAND: Yeah, I mean you can talk about volatility. It wasn’t like Amazon was going up in a straight line, but you can– we’ve all watched the 60-minute old clip of them covering Bezos in ’98 or something like that. And they talked to an analyst, and the analyst said, well, they’re selling books. And that’s a pretty good deal, like there’s at least something out there that you could disagree with or agree with in principle.

But there was a product there that you could understand, and I think the difference is that there is a fear, Andy, isn’t there? That you’re not going to buy what 10,000X is, but is Bitcoin’s case as simple as maybe – you know, think about the Munger thing on Google. Well, we use it a lot for Geico. I should be able to figure it out, right? I’m not sure if there is a similar case for Bitcoin, but maybe the fear of missing out was worth 1%.

– Yeah, that’s the FOMO thing, and I mentioned it, Myles, and your grandchildren calling you an idiot. Haven’t bought 30k Bitcoin? You are an idiot. Grandpa, how could you miss that, you know? I mean, that’s the trick. But you know, even Bitcoin itself failed, you might say, at its fundamental premise, which is that it is supposed to have been this great facilitator of commerce and used to make transactions.

And, in fact, it’s much more of an investment, and even, once again, Elon Musk admitted last week that he needed diapers. He needs layers for this to work, and right now, that’s just the thing that is trading. Your brain will have to dwell on it.

MYLES UDLAND: Yes, no, I agree. I will say, however, up to about $ 30,000, and you know, I’ve written about that before. We have already talked about that. It looks like it’s not the right price, as it looks like Bitcoin is probably worth 10,100 times what it is now. Or it’s not worth anything. 30,000, 40,000 feel like that divides the difference that I’m not sure everyone is really happy with. So you go out, and you have to buy it, right?

– That’s right, and another fact, this little factoid about only about 1% of the total value of Fiat currency.

– Sure.

– Right? So, what does that tell you? I do not know.

– So. Okay, it’s Andy Serwer. Andy, an interesting conversation that I know will continue as we move forward here, and we’ll find out which Grandpa ends up being an idiot in the end. The one who lies, and the one who sticks to the good old things.

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