Robert Toomey, CFA/CFP, is Vice President of Research for S. R. Schill & Associates on Mercer Island.

Robert Toomey, CFA/CFP, is Vice President of Research for S. R. Schill & Associates on Mercer Island.

Is cryptocurrency really an investment? | Guest column

Undoubtedly you have heard about the new form of money known as digital or “crypto” currencies.

It is a fascinating new development in the financial world and it has caught a huge amount of attention on Wall Street as people try to capitalize on it. To define it, a “crypto” or digital currency (DC), is a form of “money” represented by digital data, or a data file, that can be used for the payment of goods and services online. A couple of the more popular cryptos include Bitcoin and Ethereum, but there are in the neighborhood of 4,500 private cryptocurrencies now identified.

There are a lot of big time players on Wall Street looking to capitalize on the current digital currency craze. They do this in several ways, for example “mining” and acquiring the DCs (or “tokens”); trading in the stocks of companies that purport to mine, use, or own DCs; or trading DC futures. We’ve gotten numerous questions from clients about DCs and “investing” in them. This begs the question: are DCs such as bitcoin truly an investment?

To answer this, let’s first define an “investment.” In my view, an investment involves the process of analyzing and placing money into a vehicle or instrument that one believes has a high probability of providing gain, or a positive return on capital (ROC), based on a definable and predictable source of return such as income (i.e. rent or dividends) or price appreciation based on future earnings. In other words, to be an “investment,” there needs to be a “fundamental” basis for the placement of funds. The “instrument” could be things that are expected to generate a positive ROC such as a bank CD, a high quality stock or bond, real estate, a mutual fund, etc.

So let’s turn to cryptocurrency. Is it an “investment?”

Based on the above definition of an investment, we think not. Crypto does not have definable “cash flow” such as earnings or dividends. Its price is extremely volatile making it a poor store of value. The key to trading or owning crypto is its perceived scarcity value. Many players in the crypto space believe a DC such as bitcoin will only increase in value due to their limited quantity (21 million produced) and increasing number and value of transactions using DCs. While this may be the case, it needs to be understood that the DC is only the medium for transactions; it is not providing the characteristics of an investment.

Trading in crypto is then really more a form of speculation, in my view, which is purely guessing on the future price of something based on non-fundamental factors, such as emotion or fear of missing out. As we do for all our clients’ investments, we believe the best approach for achieving positive ROC is accomplished through investing in diversified holdings of quality stocks and bonds that offer a rational basis for ownership based on sound financial fundamentals.

Robert Toomey, CFA/CFP, is Vice President of Research for S. R. Schill & Associates on Mercer Island.


In consideration of how we voice our opinions in the modern world, we’ve closed comments on our websites. We value the opinions of our readers and we encourage you to keep the conversation going.

Please feel free to share your story tips by emailing editor@kirklandreporter.com.

To share your opinion for publication, submit a letter through our website https://www.kirklandreporter.com/submit-letter/. Include your name, address and daytime phone number. (We’ll only publish your name and hometown.) We reserve the right to edit letters, but if you keep yours to 300 words or less, we won’t ask you to shorten it.

More in Business

Robert Toomey, CFA/CFP, is Vice President of Research for S. R. Schill & Associates on Mercer Island.
Is cryptocurrency really an investment? | Guest column

Undoubtedly you have heard about the new form of money known as… Continue reading

Front bar at Bellevue’s Civility & Unrest (courtesy of Civility & Unrest)
Two of James Beard Award-winning chef Jason Wilson’s restaurants to reopen in October

The Lakehouse plans to reopen Oct. 12 and Civility & Unrest reopens Oct. 14.

Stock photo
Grocery store workers have right to wear Black Lives Matter buttons

National Labor Relations Board ruling against ban by Kroger-owned QFC, Fred Meyer

Big Island Poke in Renton (courtesy of The Intentionalist Facebook page)
Small-business advocacy group wants you to try minority-owned businesses and put it on their tab

The Intentionalist is opening up $400 tabs for folks to use this weekend at select businesses.

Eastside King County restaurant owners discuss challenges with U.S. Rep Suzan DelBene at Pomegranate Bistro in Redmond. (Photo credit: Cameron Sheppard/Sound Publishing)
Restaurant owners discuss labor difficulties with U.S Rep. Suzan DelBene

Experienced service and kitchen staff are reportedly hard to hire as food service reopens.

Dave and Buster's restaurant and entertainment venue looks to hire 130 people to staff its Bellevue venue, set to open in August. Photo courtesy Dave and Busters.
Dave and Buster’s hiring 130 for August opening in Bellevue

Dave and Buster’s restaurant and entertainment venue opens in downtown Bellevue on… Continue reading

Images of dishes from Issaquah’s Umi Cafe posted on the SMORS page. (Photo courtesy of Kristen Ho)
Facebook page promotes minority-owned restaurants across Puget Sound region

Miya Nazzaro used to be a member of Facebook pages that were… Continue reading

The Moe Vegan food truck serves meals at the city of Kent’s annual Community Thanksgiving Dinner on Nov. 21, 2020. Sound Publishing file photo
King County fire marshals offer regulatory relief to food trucks

39 fire authorities have reportedly agreed to standardize fire codes and inspections.

Cash Cards Unlimited partners, left: Nick Nugwynne, right: Cassius Marsh (photo credit: Cash Cards Unlimited)
Former Seahawks player Cassius Marsh cashes in on trading cards

Marsh and his friend open physical and online trading card store as collectibles boom amid pandemic.

Teaser
First large-scale, human composting facility in the world will open in Auburn

“It’s what nature meant us to do. We just do it faster.”

file photo
Cinemark opens theater at Totem Lake despite bad year for movie theater industry

Cinemark spokesperson said movie theaters still have unique value despite new focus on streaming.

Whole Foods grocery store entrance (Shutterstock)
King County considers grocery store worker hazard pay for those in unincorporated areas

The King County Metropolitan Council will vote during its next meeting on… Continue reading