Cybercurrency gets a cautious stamp of legitimacy

Bitcoin and other cybercurrencies are now available as exchange-traded funds. (Photo: Getty Images)

By Steve Dinnen

Cybercurrencies like Bitcoin got a huge boost in January when the Securities and Exchange Commission cleared it for trading as exchange-traded funds. Since then, billions of dollars have poured into this investment vehicle, growing ETF giants like the Grayscale Bitcoin Trust, which has already amassed $27 billion.

But is it a good idea? Are investors wise, or wary, to put dollars into cybercurrencies that have shown themselves to be massively volatile and even prone to fraud. (Witness the collapse of the cryptocurrency trading platform FTX and the disappearance of billions of dollars of client money.)

Kelly Flynn, the chief investment officer for Prospective Value Partners here in Des Moines, sees the pros and cons. “As a citizen, I’m rooting for cybercurrency, on the belief that competition yields the best results,” he said. “Maybe this potential competition with the dollar will one day force us to come to terms with the deficit and debt.”

But as an investor, he’s not convinced. “I can see no way to value it, so to me it’s simply speculation, which I try to avoid,” he said. “I really have no idea where it will go, other than a hunch that it will be extremely volatile.”

Bitcoin, the cybercurrency giant, showcases this volatility. Its current price of $63,685 (near an all-time high) is 128% higher than a year ago. That’s 51% higher than two years ago but just 8.6% above its price three years ago in March. Over the past five years, its price has risen 1,455%, which compares well against current high-flying stocks Nvidia (up 1,980%), Tesla (up 1,068%) and Eli Lilly (up 659%).

Now that cybercurrency ETFs are allowed, institutional investors seem to be accepting their viability, said Toby White, an associate professor of finance and actuarial science at Drake University.

“These new ETFs appeal to some investors who couldn’t quite stomach traditional crypto trading but, due to the increased diversification and relatively lower/smoother volatility of the ETFs, are willing to finally get in the game,” White said.

He noted earlier that, despite the plethora of risk, certain investors find cybercurrency attractive, “especially among the younger generation who have less to lose and more to gain, who may be legitimately suitable for, and attracted to, the prospect of high returns in the short run.”

Curious about Bitcoin? Ask a finance student.
After my cybercurrency interview with Toby White, who teaches finance at Drake University, he talked about it with his students. And he learned a few things:

  • About half of the class had experience trading in cryptocurrency, mostly in Bitcoin. That was a higher percentage than he expected.

  • The students talked about the big swings they’d seen in very short periods of time but seemed comfortable with the high levels of risk.

  • A common strategy for success: Don’t try to time the crypto market but ride the waves, as with many other investments. Generally, the students believed that values would rise over the long term.

  • On the downside, students complained about the high transaction costs, sometimes as high as 3% per transaction. That doubles to 6% for flips, when you buy and then immediately sell. Some platforms offer lower fees, but those platforms tend to be riskier. (For example, their account values may not be insured by the FDIC.)

If you’re interested in investing in Bitcoin, there are thousands of Bitcoin ATMs scattered across the country, including at least 10 in Greater Des Moines, where you can buy a coin (or, more likely, a portion of a coin). Just find the machine and slip in some cash.

But keep in mind: There are especially heavy trading costs here. According to Crypto Dispensers, you can expect to pay fees of 10-23%, depending on your location, the total value of the transaction and the specific Bitcoin ATM provider.

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