Is Volatility and Uncertainty Good for Crypto?
April 1st, 2022 | Posted in Investing, technology
Is Global Uncertainty Good for Bitcoin?
Cryptocurrency proponents have long insisted that bitcoin and other cryptocurrencies would see their value increase when volatility and uncertainty shook the world. The narrative suggested that when inflation spun out of control, when war broke out, when volatility in the stock market soared, etc., it would be digital assets that investors and citizens would turn to as havens.1
But there seems to be a glaring problem with this thesis. The world is in a moment where inflation has jumped, equity market volatility is high, and uncertainties tied to war have rattled markets—all conditions that were supposed to make crypto shine. Yet bitcoin and other popular cryptocurrencies are not outperforming. In fact, the opposite has been true to date, with bitcoin down -30% from 2021 highs and also seemingly locked in a downtrend that began last October.
So, what happened?
Robo Advisors and the Next Generation of Investment Management
Robo advisors have made a splash by helping to streamline the investing process and possibly saving investors money. But can they replace the active management and personal attention of a traditional wealth manager? Our free Revolutionize Your Retirement guide takes a look at these important issues and more, providing our insights that may be able to help you make better investing choices. You’ll get our thoughts on:
- The Impact of Fees on Investments
- Technological Advantages including Rebalancing and Tax Loss Harvesting
- Combining Robo Technology with Active Management
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For one, it seems somewhat foolish to think that in a time of great uncertainty, investors would flock to an unproven, unregulated, speculative, and wildly volatile asset for safety. Another possible problem is that cryptocurrency is still too confusing and complex for a wide majority of investors and everyday citizens to understand, which leads to reluctance to embrace it as a viable currency or technology (investing only in the things you understand is a pretty good philosophy, in our view). Finally, there is still a problem with solid internet access globally, which can make processing cryptocurrency transactions and substituting crypto for fiat currencies challenging.
This is all not to say that cryptocurrency/bitcoin is a bad investment and has no staying power. But there does now appear to be a real case showing that volatile conditions supposedly bullish for bitcoin prices are not very bullish at all. The ‘doomsday is good for cryptocurrency’ thesis has been tested, and it is not holding up.
But the erosion of one thesis may give way to a different, more workable path forward for cryptocurrency that could make it attractive for a broader set of investors. The path forward: integrate cryptocurrency with global financial networks, allow it to work in conjunction with the financial establishment, and regulate it like other asset classes.
In this scenario, a stable, growing, healthy global economy would be good for the crypto market, not the opposite. Cryptocurrency could continue to see popularity grow as a means for sending funds internationally more quickly, for buying and selling goods in web 3.0, for making loans in emerging markets, and so on. All of these capital transactions would benefit from a growing global economy, not one in disarray.
Crypto’s road to regulation and integration into the global financial system will be a long one, and it is far from written—which makes investing in the asset class mostly speculation, in our view. But some early steps are being taken. A recently signed executive order here in the U.S. calls on the government to coordinate efforts between financial regulators to understand risks and opportunities presented by crypto, and it also is initiating a study to assess the possibility of the Fed developing a digital currency. This latter point is already being explored by many other central banks around the world.
Cryptocurrency and Technology in Investing
In our view, cryptocurrency is too unproven and speculative of an asset class for investors to consider part of a prudently diversified portfolio. This is not to say it will fail or succeed. Rather, there are too many unknowns, in our view.
At Zacks Advantage, we’re advocates for using technology to improve financial outcomes, which is why we’re even writing about cryptocurrency at all. We embraced a different kind of technology to design a product we believed could help clients. Like many game-changing technological advances, “robo advisors” are simply the result of new technology transforming old approaches. Financial institutions have long employed sophisticated investing algorithms, and they’ve also developed guidelines to match portfolios with client needs. Robo advisors leverage these existing systems, and connect investors with them directly via the internet. In the process, they bypass much of the previously needed human interaction and oversight.
To be sure, robo advisors aren’t likely to replace human financial advisors anytime soon – complex tasks like tax accounting and estate planning remain beyond their reach. But robo advisors often excel at the limited functions they perform, with tasks like rebalancing and removing emotional bias from the investment process.
Zacks Advantage leverages these functions and then layers on our expertise to “inform” the algorithm of what the allocation should be. Left to their own, robo advisors won’t adjust holdings based on changing economic or market conditions. For example, if a certain group of stocks gains favor or a certain sector becomes unattractive – robo advisors typically can’t adapt like human advisors can. But they can be programmed by a human advisor – in this case, the portfolio managers at Zacks Advantage – to make those changes based on our input.
In this way, the Zacks Advantage is taking all of the most useful applications of a robo advisor, and adding on the expertise we’ve accumulated over the years through the Zacks research-driven approach.
Bottom Line for Investors
Perhaps the biggest impact robo advisors have made on the investing landscape is that they’ve made investing accessible to everyone. Cryptocurrencies are attempting to do something similar, but there’s a long road ahead, in our view.
With robo advisors, even people with minimal resources can now set up an investment plan, fund it, and stick with it. By staying focused and investing in a portfolio designed to meet their needs, investors have a better chance than ever before of achieving their investment goals. There’s no need for massive short-term returns that often lures people to cryptocurrency. Slow and steady can still win the race.
Zacks Advantage is at the forefront of using cutting-edge financial technologies to create innovative investment solutions—including retirement investment solutions. Our actively managed robo advisor:
- Invests exclusively with ETFs
- Uses technology to recommend the appropriate mix of equities and bond ETFs to help achieve your investing goal and specific risk tolerance.
- Lowers fees and expenses
Our free Revolutionize Your Retirement guide3 provides investing insight that can help you determine whether technology-enhanced investing is right for you.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss
Zacks Advantage is a service offered by Zacks Investment Management, a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. All material in presented on this page is for informational purposes only and no recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Nothing herein constitutes investment, legal, accounting or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney- client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.