Bruce Brammall: With Donald Trump in charge, are cryptocurrencies now worth the gamble?

Jeez, it’s hard to get a beer in Qatar. But I found myself one in an Irish sports bar in Doha. Where I met an interesting guy.

Faced with two dozen screens showing sports I mostly wasn’t interested in, I settled on the Rugby World Cup, being held in France, talking to a gaggle of sports nut foreigners. No one in a bar in Qatar is a true local — you can’t get in to bars without a foreign passport.

South Africa beat the crap out of Romania, who was really only there for a participation award (South Africa 76, Romania 0).

In my shout of four was a South African cricketer who knew a bit about World Cups. In 1999, dude dropped a catch against Australia that is credited with handing Steve Waugh’s men glory – Herschelle Gibbs.

Herschelle is fascinating. But he’s not my interesting guy.

My guy was an Englishman named Jon. Jon was a professional poker player, living in Thailand. But largely now travelling the world, watching whatever top-level sport he could get to.

He was in his 40s. And a “man of leisure”, from cryptocurrency investing, during the early days of Bitcoin and Ethereum, which was favoured in the poker community.

Got enough of it. Held it. Boom started. Retirement arrived.

New world order

I’ve traditionally been sceptical of crypto. The “investment” angle. I’ve read a reasonable amount about it and a lot more in recent times, care of Jon and his friends.

My issue has always been how something that is unlimited in production — almost anyone can start a new coin — can be a long-term value creator.

Unlimited supply destroys value. It’s why property does what it does. Supply is limited. And why companies need to control their share register and can’t issue unlimited shares.

DebtBoy asked me about crypto last week.

It’s back on everyone’s lips, because it’s gone berserk again. A sizeable portion of that is credited to the Donald Trump impact and effect. Weeks out from the US election, and in anticipation of him winning the presidency, cryptos started moving north and have only accelerated.

The Donald is seen as a massive positive for cryptocurrencies, due to both directly pro-crypto policies and some other promises potentially having flow-on benefits for crypto, such as being a safe house in times of Trump-caused US-dollar fluctuations, for example.

And between October 2 — a month before the US presidential election — and late last week, Bitcoin had gone from $88,000 to top $140,000. Annualised, that number could cause vertigo.

Coin traders were literally cheering for Trump. And when it looked like it was going to go his way … it was time to get out of their way.

Concentration risk

But DebtBoy’s question was fairly straight up and down, about whether cryptocurrencies are a real investment, better or worse than shares?

Early on, I was one who thought it was a fad that would crash and burn, like tulip-mania. But it’s still here. And seems unlikely to die anytime soon … unlike Binance, Sam Bankman-Fried and FTX. Don’t forget, there have been plenty of people burned badly through crypto.

As a single investment, crypto is at the far right end of extremely high-risk — somewhere over yonder near The Donald’s politics.

High-risk means volatile, both up and down. Your investment can go dramatically up and dramatically down, quickly.

Some, like Jon and his mates, thrive off that extreme risk, hoping to mitigate it with research and surrounding themselves with experts.

Reversion to mean is a strong pull. Look at fund managers and stock brokers. The ones that can out-do their peers year after year after year is, essentially, zero. They’ll have streaks, then periods of stink.

Dabbling in crypto — maybe some small holdings, or a crypto-based exchange-traded fund — is one way of having some exposure to it and spreading some risk, for those so inclined.

Share markets can lose 30-50 per cent in short periods. In general, they will make back most of those losses in reasonably short periods, but it can take many years to get back to new highs.

Individual cryptocurrencies can lose much more than 50 per cent. But their short history has shown they can bounce back infinitely quicker.

Simply, concentration in any asset class, or asset, intensifies your investment risk. Crypto might appear to be here to stay. But like anything, unless you’re prepared to risk it all, stay diversified.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. bruce@brucebrammallfinancial.com.au