Advisor says cryptocurrencies are the epitome of current market extremes and investors must be warned of risks
We are operating in times of extreme market greed and advisors must earn their corn by protecting clients from its most speculative excesses.
That’s the view of Neil Bosch, portfolio manager at Richardson Wealth, who has been alarmed by some of the ongoing speculation, particularly around cryptocurrencies. In a month when Bitcoin fell from almost CAD$80,000 to just north of CAD$60,000, and a day after an NFL player said he would be paid his entire base salary in the crypto, Bosch bulked at the currency's volatility.
“I actually had a friend reach out because his employer offered him the choice of receiving salaries in cash as usual, or in Bitcoin. My comment to him was, ‘your $6,000 that you receive in cash, are you prepared to see that go down to $4,000?’
“The volatility of these cryptocurrencies is pretty extreme. If you're relying on that money for your family's basic needs, you might want to reconsider that option. It always comes down to the client's objectives and risk tolerance, and what they're comfortable with. When [this person] looked at his personal situation, he knew he wouldn't be comfortable with that type of fluctuation, so his decision was very easy."
Calgary-based Bosch believes that a critical role of an investment advisor is mitigating extremes; being optimistic in times of heightened fear and tempering enthusiasm in times of extreme greed. “I’m paid to see danger everywhere,” he told WP.
It’s this level of risk management – or risk alertness – that he feels is needed around cryptocurrencies, especially given the euphoria and new ETFs around Bitcoin and Ether. These are currencies that need to find where their value is but that, in the meantime, "jump all over the place". Bosch said: “I believe there is risk in people looking at cryptos as a form of creating value. They're a medium of exchange, and people need to understand that.”
A portfolio manager since 1996, he said investors need to be reminded that in times of crisis, speculative investments get hit the hardest. People are naturally curious abut crypto because it’s in the news and has had a great run but the market is now bloated with liquidity, while savings have also been hoarded because of the stay-at-home orders.
This has meant a whole new breed of investor entering the market who may not have experienced a correction before.
“I would hope that people with investment advisors are getting the proper advice, and I would think they are," Bosch said. "My worry is people read some of these websites and social media sites and take that as gospel. That is very, very dangerous and has certainly led to some of the wild speculation in the market.”
He added: “Am I excited by what's happening? Yes, absolutely. The blockchain ledger system is going to be as influential in changing our lives as the internet. I don't know what's coming next but it's certainly very exciting to watch. People just have to be aware of what their risk tolerance is and what they're able to handle because we will continue to see wild swings.”