By Jack Forehand (@practicalquant) —
There may not be a more polarizing topic in investing right now than cryptocurrencies. On one side, believers in the technology think it will change the world and will generate massive investment returns for those who invest in it. On the other, many believe that even after the recent significant declines, any money invested in the space is bound to be lost.
Because of the strong opinions that exist on the topic, most articles and interviews you see on it tend to be one sided and offer nothing but support for the opinion they are promoting. Coverage of the subject also tends to get into a level of detail that is difficult for most investors (myself included) to understand.
With this week’s interview, I wanted to attempt to address those issues by talking to someone who can help combat both of those problems.
I found the perfect person for that in Tyrone Ross of NobleBridge Wealth Management. Tyrone can offer a unique perspective on the subject matter because he doesn’t come from within the space. He is a financial advisor who understands the realities of building client portfolios and who also has spent significant time studying both the positives and negatives of this new asset class. That combination puts him in a unique position to offer a balanced take on the topic.
For those who are not familiar with Tyrone, his story is also a very inspirational one. If you haven’t heard it, I highly recommend you listen to his interview with Dr. Daniel Crosby on the Standard Deviations podcast.
Jack: Thank you for taking the time to talk to us.
As is typically the case with new assets that have significant uncertainty associated with them, the opinions regarding cryptocurrencies are all over the place. The distributed ledger technology behind cryptocurrencies is incredibly appealing on the surface because it could democratize many things that are currently controlled by centralized entities. There are also some incredibly talented people currently working in the space and when that has happened in other areas historically, you typically have eventually seen positive results. But on the other hand, all of that hasn’t resulted in any products that have achieved mainstream use. As someone who has spent a lot of time studying the space, how do you look at the balance between its vast potential in theory and the lack of visible results so far? Are there any things going on behind the scenes you can talk about that you think refute the argument that there hasn’t been the progress that many had hoped for so far?
Tyrone: First of all I want to thank you for asking me to do this, Jack. I appreciate you. Anyone that follows me on Twitter knows that I am balanced when in it comes to my take on cryptoassets. I’m an absolute believer in the future of the space and its potential, but at the same time there’s still a lot of that needs to be fixed in order for it to realize its potential. 2017 was a year in which the economy got ahead of the technology and hence you had a massive speculative bubble. Last year the entire space was down ~80%, but there was a lot of good news that was not reflected in the price. For example, you had a lot of legacy brands get into the space like Fidelity with its qualified custodian offering, or David Swensen at Yale publicly announcing a position in a crypto fund. In some recent news that indicates the space is maturing, Samsung has announced that their new phone will contain a crypto wallet. You’ll start to see more phone makers follow their lead. You can also buy bitcoin now at the Coinstar machines that we all see in the grocery store. There are also platforms that allow you to loan out your crypto, get a loan based on your crypto holdings and there are crypto interest-bearing accounts. One of the biggest things that I feel most people don’t understand is how easy it can be to purchase bitcoin. The belief is that it’s this complicated process, but you can buy bitcoin inside of the Cash App in less than 30 seconds. The infrastructure for easier use and access has improved over the last two years, and there’s still a way to go, but its farther along than most people know.
Jack: For those who believe in the long-term future of cryptocurrencies, the practical application of that belief can be very difficult. Incorporating a high risk/high reward asset class like this into a portfolio can be very challenging. We obviously can’t offer any personalized advice here and everyone’s situation is different, but I was wondering if you could talk at a high level about the process of deciding whether to incorporate an asset class like this into an investor’s portfolio and how to do so in a way that reflects both its upside and its risk?
Tyrone: As you’ve stated I can’t offer personalized advice, but if you are looking at bitcoin as “digital gold” it could have some utility as part of a diversified portfolio. People in the space much smarter than myself have referred to bitcoin as a call option on a future store of value. I’m very fond of that description. It has been shown in studies that adding bitcoin to a diversified portfolio yields a higher sharpe ratio. It is still very early in the development of the asset class, so right now I think a 1% – 5% allocation is a prudent position for investors that can stomach the volatility.
Jack: One of the lessons that history has taught those of us who invest in stocks is that trying to pick the winners and losers often doesn’t work out as well as just owning the entire market through index funds. With so many tokens currently available and the eventual winners very hard to predict, it seems to me like that approach could make sense in cryptocurrencies as well. But I would assume the logistics of building a portfolio that incorporates the future potential of the space could be very difficult given the number of assets and that the eventual winners may not be the current leaders. What are your thoughts on the use of indexing vs. a more active approach in cryptocurrencies?
Tyrone: It’s funny you ask this question because I started out a fan of indexing in the crypto space due to it being so difficult to determine which coin will be one to succeed. However, the more I began to learn about bitcoin (no, I’m not a bitcoin maximalist) I realized how much bitcoin separates itself from all of the other coins in the space. Also, building a crypto index similar to the market cap weighted indexes in traditional markets isn’t appropriate for cryptocurrencies. Much smarter people than I like Nic Carter, Willy Woo and Chris Burniske are developing new ways of valuing blockchains like ‘NVT ratio’ which is basically the PE ratio for Bitcoin. If an index were to be developed using one of these new valuation tools maybe I would warm back up to an indexed product. It’s also worth noting that index funds have underperformed when you use bitcoin as the benchmark.
Jack: Most people assume that getting Wall Street more involved in cryptocurrencies will be a good thing. On the surface, bringing more capital to the space seems like a positive, but it may not be as clear cut as many think. The launch of Bitcoin futures didn’t have the positive impact many thought it would and you have been a skeptic about whether the eventual launch of cryptocurrency ETFs will be a positive. How do you look at the positives and negatives of more Wall Street involvement in cryptocurrencies?
Tyrone: This is a slippery slope for me. I am on record saying that a bitcoin ETF is a money grab and completely useless. I just got back from Inside ETFs and during a conversation with one of the ETF providers that submitted a bitcoin ETF application with the SEC, they admitted that it had no use. The issue is these firms know Wall St. wants it, so they’re all trying to kick the door down to get it through. As you mentioned in your question, the futures market hasn’t added the liquidity many thought it would (although recently it has improved) and now people think an ETF is the answer. At the end of the day is Wall St coming into the space a positive? Sure, it is, as it will add much needed credibility, infrastructure and liquidity to the space. On the other hand, packaging up bitcoin and other coins into products to push them on retail investors goes against what crypto is all about. Mainly decentralization and self-sovereignty.
Jack: One of the things that impressed me most about your story is the grit and perseverance you have shown in overcoming the obstacles you have faced in your life. Persistence is such an important part of success and it is something I think we all can improve upon so I wanted to see if you have any lessons or tactics you use that you could share. Could you talk a little about how you approach the obstacles you face in life and how that approach has allowed you overcome them and achieve the success you have?
Tyrone: This is probably the most important question you’ve asked, so I want to be very deliberate and concise with my response. We all face obstacles in life and what I learned more than anything is to have the right attitude when they come. We all have a hidden strength that allows us to endure more than we think we can. It is important to have something that you can draw on for reserves when you’re at your lowest point and feel as if you can’t go on. A lot of motivational speakers like to call this your “why”. It could be family, colleagues, financial goals, or personal development aspirations. I always try to remember what my parents sacrificed for me and all we’ve been through as a family and that keeps me centered. Due to the trials I’ve faced in my life I’ve had to endure hard times and rough outcomes, but the number one tool to overcome it has been gratitude. My mother always taught me that no matter what happens to you in life to be grateful. If you can’t think of anything then find something to be grateful for. This includes the hard times, because after you’ve endured the worst times (a bear market for example) you can be certain better tomorrows are on the way. So, the goal is to be thankful before, during, and after anything that comes your way in life. Whether it be abundance or scarcity.
Jack: Thank you again for taking the time to talk to us today. If investors want to find out more about you and NobleBridge Wealth Management, where are the best places to go?
Tyrone: The best place is on Twitter @TR401. I also post lots of content on LinkedIn and you can find me there at Tyrone Ross Jr. Personal website and Youtube page coming soon!
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