Student Perspective: The Argument For and Against Cryptocurrency Investing
With the rise in popularity of Bitcoin and other cryptocurrencies in recent months, it is no surprise that there is a community of students at Yeshiva University who are either invested in the volatile marketplace, interested in learning more about it, or both. Some of these students are members of the new CryptoCurrency Club, while others are investing based on their own research and “feeling” as to how the market will move. Either way, it is a risky investment, and those who put money into the market should have zero expectations as far as seeing a return on their principal. While the value of bitcoin has shot up from just under $7,000 per coin, and seen movements upwards of $16,000 per coin, and back down to around $14,500 in under one month, there are many skeptics — a notable one being Jamie Dimon, CEO of J.P. Morgan Chase & Co. — calling it a “fraud,” and those who invest in it “stupid.” Whether these claims are substantiated or not is still up for debate, but one thing is certain: the debate over whether cryptocurrency is raging hard, with very vocal supporters and detractors on campus.
Yosef Kerendian is a senior in Sy Syms studying finance and management, and is also the President of the YU CryptoCurrency Club. Their mission is to “inform students and businesses about the benefits of Bitcoin, Blockchain, Ethereum, and other cryptocurrencies and technologies.” Principal activities involve meeting to discuss bitcoin and other cryptocurrencies, as well as bringing in speakers and investors to hear their stories and learn from them. In addition to meetings and events, Kerendian has taken it upon himself to keep his forty three club members informed by sending out bi-weekly updates on the state of cryptocurrency. Seeing as the value of all cryptocurrencies — particularly bitcoin — is so volatile, these newsletters are never the same, and always packed with fresh information for the club members.
Kerendian began researching bitcoin in the summer of 2014, and became hooked while ordering breakfast at a Coffee Bean in Los Angeles: “I met an older individual who bought and sold cryptocurrencies on a daily basis. He introduced me to Bitcoin and told me about the benefits to investing in it; I wish I remembered who he was. I started investing in September of 2017 with money I had made from a summer internship, and continue to this day.” While from the outside looking in it is easy for one to think “of course you’ve stayed in it until today, the value has more than doubled since you started investing,” it is important to realize how much of an impact the fluctuation of value can have on an investor. Few people who invested significant amounts of capital in bitcoin, would be able to stomach the financial rollercoaster, technically known as volatility, that is the bitcoin marketplace. Meanwhile, the introduction of bitcoin futures trading by Cboe Global Markets and CME Group may bring bitcoin into the mainstream investor portfolio — even this is merely conjecture — it will not do much to tame the sharp increases and decreases in value investors deal with on an hourly basis.
Kerendian is not your typical cryptocurrency investor. While I believe that the value of bitcoin and the other cryptocurrencies lies not in the currency itself, but in the potential the underlying blockchain system has to transform financial services as we know it, Kerendian believes strongly in the future of cryptocurrencies themselves: “Paper money will fade and die, and there will be only one cryptocurrency. Maybe it’ll be bitcoin, maybe it'll be something else, but here's how the ‘money system’ will work: There will be one universal digital currency, say bitcoin. People will use bitcoin to make everyday purchases, everyone will get paid in bitcoin.” The list goes on, but for the sake of brevity, I’ll give you the gist of it: everyone in the entire world will be using bitcoin, or some other cryptocurrency, for every single thing they do. Like Kerendian said, “paper money will die,” and cryptocurrency will be there to pick up the pieces.
While declining to share his exact returns to date — “they are somewhere in the two-to-three digit range” — Kerendian did share his cryptocurrency portfolio breakdown. In addition to trading a more typical asset class, stocks, through Robinhood, an app that that allows customers to buy and sell U.S. listed stocks and ETFs with $0 commission, Kerendian’s crypto-portfolio is made up of about 60% Litecoin, 20% Bitcoin, 15% Ethereum, and 5% Ripple. Bitcoin is by far and away the most popular cryptocurrency to the public eye, followed by Ethereum and Litecoin. Neither of the latter two are valued anywhere near as high as the former, which is why Kerendian has invested in it. He believes that the value of Litecoin, like Bitcoin, has the potential to skyrocket, and is therefore significantly undervalued.
Not only does Kerendian fundamentally believe in the future of cryptocurrencies as a universal currency, but he also has the stomach to handle to volatility associated with investing: “There is no uncertainty. Cryptocurrency is the future, and it will revolutionize the entire money system. The volatility makes for an interesting ride, and keeps me on my toes. Many like to stash their money in a traditional exchange traded fund maybe bury it in an index fund. I embrace risk and chase after it. It's who I am. It's my personality.”
While Kerendian, in a blog post on Quora, acknowledges that bitcoin may in fact be a bubble, he believes that it is not too late, nor too risky, to invest in the bitcoin market: “Is bitcoin a bubble, maybe. Maybe not. But here’s one piece of advice that goes a long way: The best time to plant a tree was 20 years ago. The second best time is now.”
Eli Weiss is a junior in Sy Syms studying BIMA and finance; unlike Yosef Kerendian, he is extremely skeptical of the cryptocurrency market. Weiss began researching cryptocurrencies at the beginning of the semester, and has come to the conclusion that while there is certainly upside, it is not worth investing in the cryptocurrency market: “If you could ride the wave while it's going up, then you can make a lot money on the investment, but it's important to know that it's a bubble; for me, it’s not worth the risk. I wouldn’t touch something that volatile.”
Cryptocurrencies such as bitcoin are only as valuable as the market perceives them to be at a given point in time. At this point in time, there is very little — if any — inherent, tangible value to these digital coins, which is why we have seen the value skyrockets in the past few months; it is also what will lead to the popping of this cryptocurrency bubble. Proponents argue that this is not a bubble, and that it is not reminiscent of the tulip mania, the tech bubble, or the housing bubble. While Wall Street has made very clear the belief that cryptocurrencies are currently in a bubble, there are some who have struck gold by investing in bitcoin. When asked what he thought about the Winklevoss twins — infamous for suing Facebook’s Mark Zuckerberg for taking their idea for a social media platform and turning it into what is now Facebook, and the most well known of the few “Bitcoin Billionaires”, publicly daring bitcoin skeptic and J.P. Morgan Chase & Co. CEO Jamie Dimon to short bitcoin, Weiss merely responded with “that’s funny because Jamie Dimon would never do that.” He has a point. While a skeptic, he acknowledges that shorting Bitcoin right now would come with a mountain of risk and potential to lose a large sum of money. He would, however, purchase options to short Bitcoin: “I'd consider putting in around $500 -- enough to garner a significant return should the bubble pop when I expect it too, but not so much as to bet my portfolio on it -- to buy options to short Bitcoin.”
While he is considering adding an option to short Bitcoin to his investment portfolio, for the time being, Weiss’s portfolio consists of traditional equities such as General Electric (GE) and Bank of America (BAC), two stocks which represent nearly everything that Bitcoin is not: stability and reliability, even when their stock price is down. For example, GE’s stock price is down 44% year-to-date, but historically speaking they have been a steady performer, and their decrease in value this year is due to a myriad of tangible factors. Bitcoin, on the other hand, is up more than 2,000% year-to-date, but it’s value is linked to nothing but public perception — a factor that can change in an instant, thereby leading to a decrease in the value of Bitcoin.
Recently, Cboe Global Markets and CME Group introduced Bitcoin futures, in an effort to stabilize the value of Bitcoin; it has not worked out that way: “We didn't think there was going to be anything more volatile than Bitcoin; then we invented futures for Bitcoin,” Weiss said. It is interesting to note that while he acknowledges the volatility of the Bitcoin futures market, Weiss still believes that it is the safest way to make money on Bitcoin. A contrarian approach, maybe, but a valid one nonetheless — one that if timed correctly could yield higher returns than buying the cryptocurrency.
Weiss is not only a skeptic of cryptocurrency investing, but a disbeliever in the practical use of bitcoin, or any other cryptocurrency for that matter, as a true mean of transaction. While Kerendian believes that there will one day be a single global cryptocurrency used for everything, Weiss believes that the idea of bitcoin becoming the currency for the entire world is “crazy”: “Cryptocurrencies are a great way for governments or high net-worth individuals who need additional security in their transactions to go about conducting business, but it is not there yet in terms of being a viable currency in its own right.” Weiss argued this point based on many factors, most importantly the inflated value of bitcoin in addition to the necessary regulation required should bitcoin or any other cryptocurrency become the globally accepted currency. While he was willing to admit that the future of transactions will be based on the blockchain technology — a digital ledger upon which cryptocurrencies are built — Weiss is not of the opinion that cryptocurrencies, even in their potentially ubiquitous form, are here to stay. Just like the gold-backed dollar was replaced by a currency that is only valuable because governments deemed them so, so too cryptocurrencies will eventually be replaced by something else. Neither Weiss, myself, or anyone else is in a position to say what that will be, but one way or another, cryptocurrencies’ demise is inevitable -- both as a potential currency and as an investment.