June 21, 2024

12 Common Objections to Digital Assets

You’ve heard it before: “Crypto is a scam.” “Bitcoin is only used for illegal activities.” “Digital assets have no intrinsic value.” There are plenty of objections when it comes to digital assets. Many of these misconceptions simply stem from a lack of education around the topic. Without further ado, let’s dive into the 12 most common objections I’ve heard in the space.

“It’s a Fad”

Once upon a time, the internet, email, and computers themselves were considered “a fad” that was only popular with a small group of technology admirers. They have obviously become staples of modern life. It may be tough to predict where digital assets will be in the next 10, 25, or 50 years, but I believe the blockchain technology they introduced will almost certainly continue to be developed and refined. To learn more about blockchain technology, please check out our recent article, “Blockchain Explained: 5 Things You Should Know.”

Some have tried to equate Bitcoin to the Dutch Tulip Bulb Mania that took place in Holland in the 1600s. However, many don’t know that the tulip bulb bubble lasted only 3 years, while Bitcoin has been around since 2009. Bitcoin also has a capped supply, which is quite different from tulip bulbs that can continue to be produced year after year.

“It’s a Fraud”

Over time digital assets have become an accepted means of exchange at retailers and merchants. They’re also being accepted in personal transactions, and governments are working to find ways to regulate them. While you may have heard of a crypto scam in the news here and there, the gross majority of digital assets have no programming, code, or malicious intent trying to steal your money.

As far as those that believe Bitcoin is only used for illicit activities, only 0.34% of on-chain transaction volume was received by illicit addresses in 2023 according to Chainalysis’ 2024 Crypto Crime Report.

“No Cash Flow or Intrinsic Value”

It’s true that Bitcoin is not backed by a physical asset (i.e. gold), but neither is the U.S. dollar or virtually any other modern fiat currency. Bitcoin is also different from a stock, which is a fractional ownership interest in a business. With those two things said, by its very nature Bitcoin has no fundamental value. However, value is a subjective concept. I’m sure you’ve heard the phrase, “One man’s trash is another man’s treasure.”

Bitcoin–which was the first cryptocurrency–was valued in thousandths of a cent shortly after its launch in 2009. Its popularity has continued to rise, demonstrating my belief that how an asset is perceived by a society is essential in establishing whether or not it has value.

This is the result of Metcalfe’s Law, which states that as a network expands its users, the value and utility of that network also expands. Years ago, I used Paypal as a means to transact electronically with my friends. Once a certain number of my friends began using Venmo, I was forced to download that app. As more and more people have gotten comfortable with Bitcoin, adoption has increased (at a faster rate than the internet in the 1990s, I might add).

“There are Too Many Coins… I Don’t Know Which One to Buy”

According to CoinMarketCap, there are over 23,000 cryptocurrencies in existence. However, not all of these coins are active. Choosing the best digital asset to buy requires a comprehensive approach, considering factors like market cap, liquidity, the project’s fundamentals, utility use case, technology, security, community support, ecosystem growth, and regulatory compliance.

“Too Volatile”

While it’s true that Bitcoin and other digital assets have experienced significant price volatility since they first came onto the scene in 2009, that’s par for the course in a young and growing market.

In the early 2000s, Amazon dropped by over 90% top-to-bottom.

On September 28th, 2000, Apple stock dropped by 52% in one day.

Bitcoin has steadily gained long-term value, with a market cap currently sitting around $1.2 trillion. And as Bitcoin has continued to mature, regulatory structure in countries around the world has advanced, which has attracted an increase in institutional investment. Many believe that as institutional adoption increases, volatility will decrease in a similar manner to Apple and Amazon.

“Too Risky”

The encryption, linked blocks, and consensus mechanisms make it nearly impossible to change information on the blockchain. The “risk” lies in how you store and access your digital assets (i.e. crypto wallets or centralized exchanges that facilitate transactions). These platforms and the software used to store and access digital assets have the potential to be hacked or tampered with. The safest method to store your crypto asset keys is to take them off of the exchanges and put them in cold storage, which is simply any wallet that cannot connect to the internet.

“I Don’t Think I Need it in My Portfolio”

Digital assets are still considered a high-risk asset class. While the upside potential could be considerable, most financial experts recommend limiting crypto exposure to less than 5% of your total portfolio (and in some cases keeping it as low as 1-2%). By limiting allocation, you’re able to help manage overall volatility and risk.

Your financial advisor–who is familiar with the broader workings of your financial situation–can point you in the right direction on an appropriate allocation to limit your risk.

“Too Late to Buy… the Price is Too High”

As we shared in our recent article, “The Ins and Outs of Dollar-Cost Averaging,” ​​using dollar-cost averaging (DCA) as an investment strategy can be beneficial. DCA aligns with the perspective of many long-term investors, in that this strategy assumes that regardless of short-term movements, prices are expected to rise over longer time periods.

“I’m Going to Wait for The Price to Fall… Then I’ll Buy”

See above! An “advantage” of dollar-cost averaging is that it helps minimize the negative effects of investor psychology and market timing on an individual’s portfolio. By committing to DCA, the potential to make decisions out of greed or fear could be reduced. Another benefit of dollar-cost averaging is that it could help ensure an investor is getting their money to work for them on a consistent basis, which is a critical factor in long-term investment growth.

“What if the Government Issues Their Own Digital Currency?”

Bitcoin provides a long term store of value that can’t be debased by government money printing. It also allows people to transact without needing to get permission from the government or a bank. It provides digital property rights. I think that a central bank digital currency would provide little-to-none of the benefits listed above, and may only serve to reinforce Bitcoin’s value proposition.

“What if the Government Makes it Illegal?”

We’re likely moving in the opposite direction as politicians from both sides look to win over voters.

While it’s theoretically possible for the government to ban Bitcoin, it’s unlikely to happen. Bitcoin is decentralized, and nodes are located around the world. So even if one government eliminates all nodes in their country, citizens would still be able to connect with nodes in other countries. Attempting to ban digital assets in a country like the United States would be a mammoth endeavor.

“It’s Bad for the Planet from an Environmental Standpoint”

How much energy does it take to secure our current fiat monetary system?

All aspects of the digital economy require energy. Think about all of the energy required to support the entire global banking system, whether processing bank transactions or powering office buildings, ATMs, local bank branches, etc.

The environmental impact depends upon the source of energy being used by mining operations as well as the impact their energy use has on the power grid. A significant portion of Bitcoin mining is powered by renewable-energy sources (i.e. wind, hydro, and solar). The actual number ranges from 20-70 percent, according to Cambridge Bitcoin Electricity Consumption Index.

Recent research by New York-based fund Ark Investment Management concludes that “Bitcoin is much more efficient than traditional banking and gold mining on a global scale.”

Let Us Guide You on Your Journey into Digital Assets

At Crossover Capital, our number one goal is to provide people with the support, knowledge, and access to make informed decisions about their financial futures. Building a foundation for success starts with steady support and a customized approach. Crossover Capital is here to provide the necessary tools we believe are required for growth and to be a champion for our clients’ success.

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Investment advisory services offered through Crossover Capital Brands, LLC (dba Crossover Capital), a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

This material is intended for informational purposes only. It should not be construed as legal or tax advice, and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third party sources, and is believed to be reliable.

Alternative investments – such as hedge funds and private equity/venture capital funds – are speculative and involve a high degree of risk. Likewise, the emergence of digital assets comes with its own speculative characteristics and involves a high degree of risk. Various digital assets have unique features, and the regulatory risk environment continues to change as governance requirements, rules, and lawsuits emerge. There may be material differences in the type of marketplaces available for digital assets, and there could be significant restrictions or limitations on withdrawing from or transferring these types of investments. Digital assets may incur higher fees when compared to traditional assets, and these expenses may offset returns.

Crossover Capital may not be able to independently verify digital asset valuations provided by institutions that hold or offer digital asset services. As a result, Crossover Capital will generally rely on information reported to it by third parties. As such, the information contained herein is for informational purposes. Clients should recognize that they may bear digital asset-based fees and expenses at the manager-level, as well as indirect fees, expenses, and performance-based compensation for digital assets. Spot bitcoin exchange-traded products were recently approved for listing and trading by the SEC. However, such approvals do not indicate SEC approval to use or invest in bitcoin. Clients should remain cautious and aware of the various risks associated with digital assets that have a value tied to bitcoin or other crypto related products.

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