May 2018 -AIER, the Media, and Bitcoin

Edward Stringham, the president of our parent organization, AIER, recently appeared on Bloomberg News to discuss bitcoin and blockchain technology. The interview, which can be viewed at Bitcoin Not for the Faint of Heart, was instructive in several respects.

We suspect many people are both mesmerized and bewildered by contradictory claims of various “experts.” Some hail bitcoin as an all-but-certain path to wealth while others confidently dismiss it as an overhyped gimmick that is sure to collapse.

AIER is a purveyor of useful economic information and as such does not seek notoriety for its own sake. Amidst the clamor Professor Stringham provides a prudent and thoughtful assessment. He explains that while the technology underlying these private currencies will likely prove to be a boon to growth, the fact is no one knows whether (or which) cryptocurrencies will appreciate, or by how much.

The bitcoin price has been extremely volatile and is likely to remain so despite increasing acceptance in established financial markets – crypto currency futures contracts and ETFs have emerged, and financial institutions are taking a larger stake. Dr. Stringham points out that while this interest has fostered greater demand for bitcoin, there remains no reliable means of assessing its underlying value. As we describe in the December 2017 Investment Guide, a purchase of bitcoin (or of competing crypto currencies) is a speculative transaction, rather than an investment.

The interview also illuminates the incentives and practices of the financial media versus those of AIER. The media’s ratings depend on bold, provocative claims and commentators are often eager to stage a good fight. AIER is content to build its reputation steadily, through disciplined, rational inquiry.

The Bloomberg host characterized Dr. Stringham as “optimistic on bitcoin and on crypto currencies” and immediately introduced a professor from the NYU Stern School of Business deemed to be a bitcoin critic, as an antagonist.

Dr. Stringham did not take the bait. When prodded to counter the skeptic, he instead agreed that bitcoin’s price may indeed fall to zero – but also asserted quite firmly that no one can forecast whether the price “will be zero, one million dollars or anything in between.” Bitcoin defies valuation because a bitcoin token does not represent ownership in a company with earnings; rather it is a stake in a private fiat currency.

Our recommendations are based on empirical analysis, and there is simply insufficient price data available for assessing these nascent crypto currencies. The best way for investors to benefit from the promise of crypto technology is to maintain broad exposure to the stock market.

Also In This Issue:
Second Hand NewsTuning Out the Noise
What to do When You Suspect Cyber Fraud
Mutual Fund Distributions: Cash or Shares
Unhealthy Attachments
Why Your Returns May Differ From Fund Perforfmance
The High Yield Dow Investment Strategy
Recent Market Statistics 
Dow Jones Industrials Ranked By Yield
Asset Class Investment Vehicles

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