Transcript:
Easan Arulanantham:
Is crypto a safe investment? Cryptocurrency a safe investment?
Tom Vaughan:
In a pure answer The answer, of course would be no just because of volatility, right? So when they look at safety, you look at volatility and you say, Okay, this can go up and down, you know, 10 or 18% in a day, that’s not a safe investment by any stretch of the imagination. You know, so what we call standard deviation, right? How much something can move around one or two standard deviations and cryptocurrencies would probably be pretty high. Now there’s lots of them actually read an article, there was 1000 New cryptocurrencies created in January. So it’s pretty wild that I think that’s one of the problems with Cryptocurrency that they’re going to run into is just there’s too much supply eventually for the demand. But having said that, Cryptocurrency is a different asset class. And theoretically, over a period of time, you might get some diversification benefit at a Cryptocurrency. And so diversification increases safety, right? We haven’t seen it completely yet. We saw, for example, the market kind of pick out here November, and come down, you know, 24th of January was the intraday low. And in that timeframe, I think Bitcoin lost roughly 50% or something. So it actually went down with the market.
So that kind of correlated with the market, as far as you want some disk correlation, where it’s kind of maybe not going down as much, it’s like bonds went down, but didn’t go down as much. So at least there’s some disk correlation there. As far as that goes. So, but but that’ll be interesting to see how that plays out. Does it create, you know, people use gold and silver, for example, for disc correlation, you know, bonds for just correlation, you know, that kind of stuff. And some bonds are more, you know, not as correlated as much as others, you know, treasuries tend to go the opposite direction of stocks in a downturn, more often than not, but you know, that kind of stuff. So, Cryptocurrency that that’s it’s been talked about a lot as a possible diversifier. If it does become one that you can actually rely upon, then that would actually potentially increase the safety of your overall portfolio. So you can sometimes add something like commodities to a portfolio that has a higher standard deviation, and lower the standard deviation of your portfolio so that if that starts to happen, that’s how it would become a safe investment in that regard, but purely by itself looking at standard deviation. Yeah, of course, it’s very high. So it wouldn’t be considered a safe investment by itself. But it could be part of a portfolio at some point. haven’t seen it yet. But could.