Opinion: I’m definitely not going anywhere near crypto, but not because of the alleged FTX fraud

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Every year I review my investments and plan where I might move the exploration portion of my portfolio over the next 12 months.

A few years ago, I added cryptocurrency to the process, thinking there might come a day when I was ready to take a little dip.

I’ve never actually invested in crypto, but my anticipation for 2023 clearly shows that it’s definitely not happening now.

Also by Chuck Jaffe: This is the only 2023 stock market prediction you need to know

I’ve never presented myself as a crypto expert, but I’ve covered the space since its very inception and watched it grow from amateurish hype to something my friends and neighbors discuss as much or more than they only talk about international stocks and bonds.

Investors considering crypto generally come from three camps: true believers, non-believers, and people in the middle waiting to be convinced or willing to take a chance. I am in the middle group.

Although I’ve never bought coins, I have $12 worth of crypto, or that’s what I was told it was worth years ago when a promoter gave me $10 worth of DuckDuckCoin and another offered $2 in BBQCoin. (I don’t refuse free money.)

Right now, I suspect that the value of my crypto holdings is roughly equal to the very real Zimbabwean billion dollar banknote I keep in my office. (Last time I checked, 1 billion Zimbabwean dollars was worth a little less than a penny in the United States)

The problem that kept me away from crypto at a time when I wanted to love it more than ever was not the Sam Bankman-Fried controversy and the collapse of FTX, the endless risk, or the miserable performance. in 2022 that it has made other declining assets like stocks and bonds emerge as big winners.

It’s that crypto hasn’t done any of the work its proponents tell me it should be doing, and there’s no reason to think that trend will change.

I don’t expect my thinking to change the minds of true believers. Bitcoin BTCUSD, +2.55% and ethereum ETHUSD, +5.65% and their competitors have attracted many investors HODLers who are holding out for life and are still around despite having their crypto assets reduced by around 66% in 2022, and they could prove to be the long-term winners. Indeed, many of them have been clinging to crypto for so long that they remain in positive territory despite the recent downturn.

But crypto enthusiasts won me over a few years ago when I started including crypto in my planning and decision-making for the coming year. Just getting into the discussion was a win, and it happened because many smart, savvy investors were telling traditional customers to dip their toes into the bitcoin pool.

The idea, of course, was that crypto had a few functions. It could be a digital alternative to gold, some said, helping to hedge against inflation. It was unregulated and could withstand global economic and political crises better than traditional currencies, other experts say. It was the wave of the future and it would eventually be accepted everywhere.

But none of those things actually happened.

Gold GC00, +0.28% is the traditional hedge against inflation, but it hasn’t worked well at all since prices started rising globally. Recently, gold has worked better as a hedge against geopolitical uncertainty; as such, it could find a place in many portfolios.

But crypto hasn’t been an alternative to gold for balancing inflation, and its decentralized and unregulated status hasn’t helped it during times of social unrest.

Liz Ann Sonders, chief investment strategist for Charles Schwab & Co., said in a recent interview on my Money Life podcast with Chuck Jaffe that she asks crypto enthusiasts to tell me what problem crypto solves, and gets most often inflation and other reasons why new currencies are better than old ones.

In the meantime, she says, we have the biggest inflation spurt in 40 years and guess what has become the ultimate inflation hedge? It was the fiat currency that is the US dollar.

Legendary mutual fund manager Ralph Wanger, who ran the Acorn fund for more than 30 years and who, at nearly 90, still watches the market, said on my show last week that crypto is a solution looking for a problem, but if not. a problem, then it has no role, at least not in my portfolio.

Meanwhile, I’m looking at things that don’t qualify as cryptocurrency like Amazon AMZN, +3.75% gift cards are transactionally used which crypto has yet to reach; my electrician now accepts payments with Amazon and Dunkin gift cards. Going a little deeper, if someone comes up with a possible use case for cryptocurrency today, I wonder what’s stopping the invention of a new, slightly better coin tomorrow that displaces everything.

No one knows if crypto can overcome bad news and headlines to have a rebound year in 2023. The arguments from either side can be compelling.

But until there are more proven answers than real questions, investors who were ready to join the bandwagon better keep their toes dry.

Chuck Jaffe is a columnist for MarketWatch and the host of the Money Life with Chuck Jaffe podcast.

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