Bitcoin: Bubble or Bonanza? - Adviser Investments

Bitcoin: Bubble or Bonanza?

February 17, 2021

In This Issue:

Bitcoin: Bubble or Bonanza?

Bitcoin topped $50,000 for the first time on Tuesday, doubling in less than two months as the digital currency continued its latest spike, bringing the total market value in circulation to $940 billion.

You may have heard bitcoin called the new alternative to gold. Indeed, when the Federal Reserve cut interest rates last year, many began viewing it as a trendy hedge against inflation—and one that institutions are starting to embrace. But what is the savvy investor to make of the cryptocurrency’s latest run-up? And is it time to join the bitcoin brigade?

First, a quick refresher: Bitcoin, like many other cryptocurrencies, is a decentralized, self-sustaining payment system where transactions occur directly between parties (peer-to-peer), with no financial institution acting as an official middleman to accept or reject the exchange of virtual coins. Transactions are verified by network nodes (a massive amount of computing power) and recorded in a publicly distributed ledger called a blockchain. There are no physical bitcoins, only balances. No application or approval is required to open an account; anyone can create an address—a mix of numbers and letters signifying your place on the bitcoin network.

In 2017, then-Federal Reserve Chair Janet Yellen called bitcoin a “highly speculative asset” that “doesn’t constitute legal tender,” “plays a very small role in the payment system” and “is not a stable store of value.”

To intrepid (and speculative) traders today, bitcoin can indeed seem like a new gold rush. But is investing in it a wise move? Bitcoin skyrocketed to $19,783 per coin in 2017 before plummeting 84% to $3,122 in 2018.

In 2020, bitcoin was up some 300%, closing the year at $28,966 per coin. And if you’d bought it then and held it, even after that whopping performance, you’d be sitting pretty today with bitcoin’s rise this month. It’s anybody’s guess where bitcoin goes from here—you can’t think about it the same way you would a stock since there aren’t any fundamentals underlying its value.

The value of a bitcoin is whatever someone is willing to buy it for on a given day. But as prices have continued to climb, so has interest from professional asset managers, their clients and big business.

Corporate America Is Buying Into Cryptocurrency

Back in October, 2018, we discussed Fidelity’s launch of Fidelity Digital Asset Services, which provides custody and trade operations for institutional traders making plays in cryptocurrency. The thinking: While retail investors have been able to trade bitcoin and other cryptos, Fidelity could leverage its experience as a custodian to provide a reliable and secure platform for institutions looking to do so on a larger scale.

Since 2018, when bitcoin crashed some 80%, there has been more legitimate adoption of the cryptocurrency. Custodians and broker-dealers are creating digital currency platforms and investment vehicles for investors. Certain payment platforms are starting to accept cryptocurrencies and some reputable investment managers support a bull stance on bitcoin.

Last week, Bank of New York MellonCorp. (BNY), America’s oldest bank, became the latest mega-player to bestow credibility on bitcoin—introducing a platform prototype that will eventually allow it to retain, transfer and issue bitcoin and other cryptocurrencies. While Fidelity was an establishment forerunner in enabling institutions to store bitcoin, BNY is pioneering a plan to treat digital currencies the same as any other asset, be it bond, equity or dollars.

Also jumping on the bitcoin bandwagon: Apple Pay and Mastercard both have plans to accept cryptocurrency on their payment platforms now or in the future. Oh, and in case you were wondering, you can also use bitcoin to buy a Tesla.

Is Bitcoin a Bubble or a Buying Opportunity?

A market bubble, by definition, is a rapid price escalation that’s not in line with the underlying fundamentals of an investment. Well, bitcoin essentially has no fundamentals. In this case, we have an asset that’s increased in price more than 1,200% from $3,858 in March of 2020 simply because a collective group of people think it’s worth that. You’d be hard-pressed not to call that a bubble.

Still, if there is a crash now, the support level (the lowest price an asset is likely to fall to) should be higher than it was three to four years ago.

At Adviser Investments, we’ll keep paying attention to bitcoin—certainly, we’re very interested to see if cryptocurrency can develop to ultimately be a stable store of value. As more reputable institutions offer and accept cryptocurrencies, then some fundamental value could come with that down the road.

But we’re not there just yet. For now, our advice remains: Don’t invest more than you’re willing to lose.

Vanguard Pulls the Plug on U.S. Value

Last August, Vanguard announced plans to end its long-suffering U.S. Value fund. On February 5, the curtain fell, and the fund company merged U.S. Value into its $97 billion Value Index fund.

The final straw for U.S. Value came after shareholders voted by proxy to approve the merger on January 22. We’re still wondering: Did anyone doubt this fund would get put out of its misery?

Simply put, U.S. Value was just another poorly run factor fund that couldn’t stand on its own two feet. After canning its last external manager in August, 2010, the fund went on to post a 207% return through the end of 2020. That’s not too shabby…until you compare it against the 239% gain for Value Index over the same timeframe. And that made those two funds the worst performers among Vanguard’s assortment of growth and income funds during that period.

U.S. Value’s two managers must have known they had a dud on their hands. Neither owned any shares of the fund. Nor did any of Vanguard’s directors—even Vanguard Chairman Tim Buckley took a pass. That’s not what we’d call a vote of confidence; and the results speak for themselves.

Podcast: What Corporate Earnings Tell Us About the Economy

We’re in the midst of earnings season, when corporate managers report on how well (or poorly) they performed in the final months of 2020 and give insight into prospects for the year ahead. Two of Adviser Investments’ portfolio managers took some time to sit down and give us the scoop on how the nation’s biggest firms are faring—and what that tells us about expectations for 2021. In this edition of The Adviser You Can Talk To Podcast, Vice Presidents Steve Johnson and Charlie Toole discuss:

  • The sectors that are surprising to the upside
  • Why a company’s stock may fall even when its earnings growth is strong
  • Why this tech-dominated market is not Dot-Com Bubble 2.0
  • …and much more

The pandemic isn’t over—but we are beginning to see some light at the end of the tunnel. Click to listen now for a perspective on how the recovery is shaping up!

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

Research Analyst Liz Laprade looked at special-purpose acquisitions companies (SPACs) and whether they’re the next bubble. And Vice President Steve Johnson explained the importance of teaching young people how to invest, not speculate.

We hope you find them engaging and accessible, and please let us know if there are any topics you’d like to hear us address by sending an email to info@adviserinvestments.com!

About Adviser Investments

Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFs, fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the eighth consecutive year, Adviser Investments was named to Barron’s list of “America’s Best Independent Advisors” and its list of the top advisory firms in Massachusetts in 2020. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015, 2016, 2018 and 2019.

For more information, please visit www.adviserinvestments.com or call 800-492-6868.


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The Barron’s America’s Best Independent Advisers rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. According to Barron’s, “around 4,000” advisory firms were considered for this recognition in 2020; with about 1,200 firms receiving recognition. The award sponsor has not disclosed how many firms were surveyed or considered for this recognition, nor the percentage of total participants that ultimately received recognition. For more information and a complete list of recipients visit https://www.barrons.com/report/top-financial-advisors/1000/2020. Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.

The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1,200 Financial Advisers) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. According to Barron’s, “around 4,000” advisory firms were considered for this award in 2020, with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit https://www.barrons.com/report/top-financial-advisors/1000/2020?mod=article_inline. Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.

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