To Crypto or Not to Crypto

Comments on “The Options for Investing in Cryptocurrency,” by Steven Ehrlich, in the July 2021 AAII Journal:

I am disappointed in AAII for covering this. Cryptocurrencies are not investments. They are pure speculations, just like gold bullion, hoping that a greater fool will come along and pay more than you did. They are not backed by underlying companies, profits, earnings, cash flows, assets, etc. No thanks, I’ll bet on the U.S. economy by sticking with the S&P 500 index fund. Some will call me old-fashioned, but history says I win and I’m good with that.
—Craig and Nancy B. from California

Is there a reputable/reliable way to short cryptocurrency? I agree with Craig and Nancy, but also feel that just like all other areas of investment, I want to be able to benefit from what I consider to be superior insight.
—Rajiv C. from Oregon

The only intrinsic value of cryptocurrency is that it’s easier for the criminally inclined to avoid taxes, bribe and extort. Most governments will soon shut it down if the climate change people don’t do it first because it is so energy inefficient.
—Gregory M. from California

This article has a lot of solid background. I share the concern about the energy cost of cryptocurrency mining. I would welcome a follow-up article on protocol tokens as applied to identity management, data storage, gaming and banking. I suspect there is real economic value to this segment of cryptocurrency, and those efforts will endure the present market speculation.
—Harold R. from Minnesota

In my opinion, both precious metals and cryptocurrency should be part of a diversified portfolio. Gold is a proven inflation hedge and store of value in periods of currency devaluation (which we are currently in). People do speculate in gold, but that’s not the point of it.

The jury is still out on whether bitcoin is “digital gold.” It is volatile, but with most every investment bank taking positions in cryptocurrency and rolling out cryptocurrency products coupled with publicly traded trusts that already exist, I don’t see how it’s not an investment. Granted, it probably falls into the alternative asset category.

The easiest way to short crypto-currency is to buy put options on companies that have high positions in bitcoin such as MicroStrategy or Square. There are no options on Grayscale Bitcoin Trust.
—Gregory E. from Tennessee

Whether pro or con on crypto-currency, this is a great article to help understand the basics of a new form of currency that may fly, or may fizzle. Personally, I’ll watch from the sidelines, at least for now.
—David W. from Arizona

You should probably note that staking and yield farming usually generate tax liabilities—likely taxable as ordinary income.
—Brian R. from Michigan

I echo other commentators disappointed with AAII for publishing this article. The author’s description of cryptocurrency reminds me of Enron. There is a lot of flowery language but no substance. And we know how Enron ended. Cryptocurrency is nothing more than investing in pure speculation.
—Edward K. from North Carolina

Charles Rotblut responds:
We received many requests from AAII members for an article on this topic. Our goal was to provide information about crypto assets so individual investors can make more informed decisions. It is neither an endorsement for nor a recommendation against holding crypto assets.

Clarifying R-Squared

Comment on “Guidelines for Selecting Mutual Funds and ETFs,” by Charles Rotblut, CFA, in the July 2021 AAII Journal:

I think the comments on R-squared in the sidebar misrepresent its use. If the goal is to show how much of a fund’s return is attributable to movements in the S&P 500, an investor would probably use the correlation coefficient, R, or perhaps the beta statistic. R-squared is a measure of the fit between the data values in a time series and a trendline through the data values. It is often used to measure the stability of the data values in a time series.
—Fred B. from Oregon

MVPs Paying Dividends

Comments on “Stock MVPs Passing the Most Screens,” by Derek J. Hageman, in the July 2021 AAII Journal:

I am just beginning to explore screening as a way to find stock investing ideas. T. Rowe Price Group Inc. (TROW) is the only stock I own on this list, and I bought it in 2020. My strategy is dividend growth investing and I imagine that the other companies on the multiple screens list pay low or no dividends.
—Harold F. from California

Derek Hageman responds:
Harold, of the 18 companies on the First Cut Stocks list, 10 of them pay varying levels of dividends: STXB, TROW, DKS, NUS, PBR, FIX, LOGI, WSM, MED and VIAC.