Inflation is much in the news. Oil & gas prices are up. Housing prices have boomed. Commodities are higher than a year ago. Financial advisors have to consider how inflation will affect the retirement plans of their clients.
It’s less obvious, but just as true, that the cost of reckless investment ideas has skyrocketed.
Owners of these assets will argue the point. They will say that rising prices increase wealth and prove that their investment decisions were smart.
But let’s take a look at Bitcoin and other so-called cryptocurrencies. As I write this, a website called CoinMarketCap.com reports that there are 5,431 cryptocurrencies and that the market value of all of them put together is $1.37 trillion.
Believers in cryptocurrencies say they offer a viable payment system that is free of government interference. In recent weeks, though, governments have cracked down on crypto trading, proving that they can and will control the payment system.
Look Out Below
With the rationale for owning crypto knocked out, there is a vast difference between that $1.37 trillion market value and what seems a more sober appraisal of value – zero.
As zero comes into view, buyers will finally realize how high a price they really paid. This will be doubly painful if they borrowed money, expecting to pay off the debt with proceeds from future trading profits.
Barry Dunaway, CFA®
America First Investment Advisors, LLC
This post expresses the views of the author as of the date of publication. America First Investment Advisors has no obligation to update the information in it. Be aware that past performance is no indication of future performance, and that wherever there is the potential for profit there is also the possibility of loss.