The market has been very strong recently. In March, the Dow went up over 2049 points or 6.6%. For the quarter, the Dow went up 2375 points or 7.76%. Most clients made money last month and quarter. We would advise, however, to not let recent price appreciation influence your behavior. Don’t let the lure of wealth make you adopt a higher risk tolerance than you are comfortable with. Eventually the market will turn and when that happens you need to comfortable with your portfolio. The topic of this newsletter will be currency and cryptocurrency. As the latter is asked about on the tax return, we felt it would be valuable to discuss it.
What gives currency value? If you were to look into your wallet right now you would probably see dollar bills. We know those things are valuable because we can use them to buy things, but why can we do that? Intrinsically, they are just worthless pieces of paper, but a shop owner will accept them as payment for their products, because they know they can turn around and use that money to buy products at another store. Dollars have value because we collectively decided they have value. They are an extremely widely accepted medium of exchange. Technically anything can be a currency. A society can choose to use seashells, rocks, sticks, etc. As long as people accept it at a currency, it has value.
It is that last point which is a big problem with cryptocurrencies. What cryptocurrencies are from a technical sense is not that important for this conversation. Think of them as a digital currency. However, currently they have very little value because very few people think they have value. There are very few places that accept cryptocurrencies as a valid form of payment. What is the value of a currency if you can’t buy anything with it? Many people who buy cryptocurrencies buy it with the expectation that will become valuable in the future. That may or may not happen (we expect it won’t), however, investing based on speculation in regards to uncertain future events is not a good idea. The future is by its nature unknowable and that makes things incredibly risky. While risk is not necessarily a bad thing, it does need to be carefully managed. We feel that investing in cryptocurrency is an unprofitable risk.
If you have any questions about this topic or any other, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.
Daniel and Eli
As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.
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Questions for the comments
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