LACERS BOARD UPDATE
By Michael R. Wilkinson, LACERS Commissioner
Email: MikeWilkinson4LACERS@gmail.com
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he LACERS Board is set to receive training from NEPC, its investment consultant, as part of its regular investor education. The focus of this training will be on a relatively new investment product: cryptocurrency. Cryptocurrency has gained significant attention in recent years due to its decentralized nature and potential for high returns. It’s essential for investment professionals to stay informed about emerging trends and asset classes, and this training aims to equip the LACERS Board with the necessary knowledge to navigate the cryptocurrency landscape effectively.
Cryptocurrency is a digital payment system that uses cryptography to store digital coins whose value fluctuates. The big question for investors is, is crypto a legitimate asset class that deserves the recognition that we give to stocks and bonds? Or is it a “flavor of the month” that is pure speculation with no proof of long-term measurable return to investors?
Certainly, some crypto investors have made dizzying returns on the price spikes of the popular crypto coin Bitcoin. However, others have lost their proverbial shirts when the price of this coin cratered when the roller coaster ride went down along the way. The price went from about $0.10 at the beginning in 2009 to as high as $73,000 recently (Source: Investopedia).
Investors in another crypto vehicle, the crypto exchange FTX, lost billions due to the fraud of Sam Bankman-Fried, who has been sentenced to 25 years in prison.
While most of the largest brokerage houses offer a chance to invest in crypto and, in fact, hype it, the second largest, Vanguard, with $7 trillion in assets invested, refuses to offer anything in this area and advises its clients to shun crypto. Why? (Full disclosure: I am a Vanguard investor.)
A Vanguard ETF (Exchange Traded Fund) manager, Janel Jackson, said, “Crypto is more of a speculation than an investment.” She added, “[Crypto] is an immature asset class that has little history, no inherent economic value, no cash flow and can create havoc within a portfolio.”
By comparison, stocks and bonds have a cash flow that can be measured and real assets that can be evaluated. Crypto-type speculation was not invented yesterday. In the 1630s in the Dutch Republic, the price of tulip bulbs skyrocketed and then spectacularly fell back to earth as the bubble burst. At the height of the bubble a single tulip bulb sold for 10,000 guilders, the value of a mansion on the Amsterdam Grand Canal (source: Investopedia).
The whole concept of speculation is based on the theory of the “greater fool” who will come behind you and pay you more for your ill-advised gamble despite the lack of sound financial reason.
In addition to Vanguard, a column by Michael Hiltzik with the Los Angeles Times was a source for this article
