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Investing in Cryptocurrency, Bitcoin and Marijuana in 2018 - a message from our Chief Compliance Officer

Let’s make sure we always learn from the past

Let’s make sure we always learn from the past

When you work in the investment world for as many years as I have, you can always tell when a bubble burst seems imminent. It’s most often when Joe and Jane Average start inquiring about how they can extract some cash from their vanilla, long-term balanced portfolio and use it to purchase bizarre, speculative stuff that they probably hadn’t even heard of a year ago and may not even be able to explain why they want to invest (other than to get rich quick!).

To that end, as 2017 drew to a close our advisors and extended team have received a number of inquiries about both Bitcoin (plus other cryptocurrencies) and marijuana stocks. So far that shows no signs of abating in 2018.

Marijuana: a temporary buzz?

Pot stocks at least are more tangible speculative investments - traded and regulated on recognized stock exchanges, but still subject to a variety of market and regulatory risks. From a “know your product” standpoint, we acknowledge our advisors can comfortably caution clients on the risks of investing in cannabis stocks, and the risks are certainly there at current valuations.

Here’s a quote from the Financial Post on December 27, 2017:

“Think about it. If you are not smoking pot now, are you suddenly going to start toking up next July? Unlikely. In addition, if every single person in Canada spent $100 a year on pot, the market would still only be $3.7 billion. But based on the market valuation of public marijuana companies, investors seem to think the market size is going to be $20 billion. We would expect marijuana stocks to perk up into July and then likely roll over when quarterly numbers reveal far less growth than expected.”

Bitcoin: a misunderstood phenomenon

Now Bitcoin is a different animal entirely and it’s obvious from reading recent news articles and tech publications that most investors don’t understand it at all. They simply hear that it’s going through the roof and their neighbour or cousin who got in early made a killing - at least on paper - so they want in too.

When our advisors are faced with these questions or requests to purchase, we will remind clients that crypto assets are a brand new arena with minimal (if any) regulation at this point and they are subject to wild swings in market value. Many mainstay investors would reasonably believe that Bitcoin is the same as a tangible commodity like gold, or a fiat currency like the US greenback and fail to understand that Bitcoin and Bitcoin futures are relatively abstract and valued more on the development and use of the underlying technology, the blockchain protocol.

Don’t just take it from us

Here are a few articles that discuss the risks and volatility of Bitcoin that we encourage you to review:

Doing the right thing for Albertans

As we welcome 2018, with no immediate end in sight for the curiosity on these speculative and very risky investments, we want to remind everyone that our ATB Wealth investment thesis and phi​losophy​ often leaves little room for highly speculative investments. We will always work in our clients’ best interest, and align your risk tolerance with your goals and investment objectives.

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ATB Financial

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