Show Transcript
The price of bitcoin has risen more than 800% in the last year. Is the cryptocurrency a once-in-a-lifetime opportunity or just investing hype to stay away from? Kim Parlee speaks with Brad Simpson, Chief Wealth Strategist, TD Wealth, about how bitcoin works and its potential as an investible asset.
Print Transcript
[MUSIC PLAYING]
- I want to start this conversation by bringing up this chart, and it is quite a chart. The question is, can you guess what asset we are looking at right here? It's something that went from single and double-digit prices in 2016 to over $50,000 US this year.
If you guessed bitcoin, you are right. But do you really know what bitcoin is, how it works, and, more importantly, how it all could play out? To help us understand these questions, we're joined by Brad Simpson. He is chief wealth strategist at TD Wealth.
Brad, you just wrote a note. We're going to bring it up here. And it's called "Crypto Mesmerism-- Everything You Wanted To Know About Crypto That You Were Afraid To Ask."
There are a lot of questions, I know. And I know the big one, quite frankly, that everybody wants to know is, can I make money from it, and how much is it worth? But I know you want to start with the basics, which is, what is a cryptocurrency?
- Sure. And thanks for having me to talk about an exciting topic. But before you try to go, what is a cryptocurrency, I think you gotta answer this really simple question. What is currency in general? Any currency, right?
If you're talking about the euro, or you're talking about a bitcoin, or you're talking about a US dollar, at the end of the day, you're talking about a claim that you hold that can be easily exchanged into some sort of unit of value. And there's value that you're claiming. It can be a coin, if you will.
And it's really based on a really simple premise. The starting one is that this claim that you hold, is it trustworthy? Is there a foundation that you believe on that is creating that value? So what you could really argue is, much of what makes a currency is a belief system underlying the claim on that value.
And the second one is based on scarcity-- supply and demand on that claim. Do people want it, or is there too many of them moving out there? So if you look at it, if you notice, anywhere in the world you go, you can take a US dollar.
And the bottom line is that there is a belief system globally that greenback is a claim that has value. So if you walk into a bank, and you put that down in front of a teller, they will immediately think there is value to it, and they will take that claim and exchange it for something else. So it's really simple as that.
If you leave that bank branch anywhere in the globe, and you go, and you see a vendor somewhere, and you want to purchase something, if they see that greenback, they look at that paper claim and think it has value. And that ultimate belief system, and accepting that, and accepting that value is really what makes a currency go. So if you look at it-- go ahead, please.
- I was going to say, so that's the basics of a currency. Then what is the cryptocurrency? Because the currency, again, we all believe in it.
We all believe that it's redeemable everywhere. We all trust it. So where does crypto fit in?
- Well, believe it or not, I actually think that there's very little new with crypto, other than the technology that makes it happen. And so let me explain that. And if you go back and watch old Western movies, basically, Western movies are about currency, and they are about the value of currency. And if you go back to the 19th century, and if you rode around on a horse and buggy around the United States, what would you notice?
There's all kinds of working people trying to do something to get themselves some gold or silver coins. And the reason they were trying to get that gold or silver coin is because, everywhere they went, there were towns, there were banks, there were businesses that were creating their own currency. There was no middleman creating the value of that.
There was that currency, saying that I can exchange that for value of some sort. And what happened with that currency is that the United States went through 100 or so years of boom and bust cycles, of massive growth and then huge depressions. And by the time they got to 1913, they said, enough's enough.
And businesses and people and governments didn't want to function like that. So they created a central bank called the US Federal Reserve Board to stop all those little currencies. Now, cryptocurrency is basically the exact same thing.
We fast forward 100-and-some years forward. And we've had, especially for the last 50 years or so, incredible stability because of these central banks. And this stability, we've forgotten what it used to be like. And so instead of making it this kind of hard currency that we're using paper for, of course, we're using technology now.
We're using an electronic ledger now instead of writing it down in a local store somewhere. And we're exchanging it electronically. Simple as that.
And so really, I say the actual idea behind it is a very old one. It's the way we're using the technology as the piece, is the new one to it. But the fundamentals are nothing new.
- It's interesting, because, Brad, you and I talked earlier about the fact that the reason that bitcoin or-- there's ethereum, and I think there's, like, 4,000 other cryptocurrencies. They exist because they get to do it with the safety of the US dollar. The US dollar or any major, I'll say, fiat currency allows that to happen.
So I'm going to put the policy stuff aside for a second, and I want to ask you the big question. Because people are watching. Is it a good long-term investment? Is it speculation? How do you figure that piece out?
- Yeah. Look, first of all, I think you have to separate those two. One, to think about it as a long-term investment, is that using any conventional sense of the word, the simple answer is no. Bitcoin is theoretical at best, because it's wholly unregulated, and we really have no really known way of thinking about how all of this is going to play out.
Now, the next part of it is that, if you take a look at bitcoin, it is the most prevalent and most widely used of cryptocurrencies. But if you tried to put an investment primer around that, it supposedly has a first mover advantage. But that can easily be replaced with the cheaper, faster, more secure cryptocurrency that are always coming.
Regulations are going to change dramatically in its use. And then the long part, which is the big key, is that so much of the value of is it's anonymity. The rise and future of quantum computing is going to put a major risk to that as well. So I think a better way of looking at it is, instead of trying to measure it and think about it as in term of an investment, the other part of your question is, is it speculation? And there's nothing wrong with speculation. It's just, when you're deploying capital to it, thinking about it in those terms, instead of looking at it in investment terms.
- I truly only have 10 seconds here, but I do want to ask you, if someone decides they want to have some of that speculation in the portfolio, is there a way to do it?
- There is a myriad of ways. There is a handful of exchanges that allow direct investment into the coins themselves. There's a futures market in the Chicago Mercantile Exchange where you can gain access. And there's a number of avenues to Canadian investors and offerings that have came to the market over the last year.
And I would just say, make sure you do your homework. Read the prospectus. Understand what you're getting into. And really look at, on the side of a ledger of when you're allocating capital, that you're utilizing that speculation dollar instead of the investment one.
KIM PARLEE: Brad, always a pleasure. Thanks so much.
- Thanks, Kim.
[MUSIC PLAYING]
- I want to start this conversation by bringing up this chart, and it is quite a chart. The question is, can you guess what asset we are looking at right here? It's something that went from single and double-digit prices in 2016 to over $50,000 US this year.
If you guessed bitcoin, you are right. But do you really know what bitcoin is, how it works, and, more importantly, how it all could play out? To help us understand these questions, we're joined by Brad Simpson. He is chief wealth strategist at TD Wealth.
Brad, you just wrote a note. We're going to bring it up here. And it's called "Crypto Mesmerism-- Everything You Wanted To Know About Crypto That You Were Afraid To Ask."
There are a lot of questions, I know. And I know the big one, quite frankly, that everybody wants to know is, can I make money from it, and how much is it worth? But I know you want to start with the basics, which is, what is a cryptocurrency?
- Sure. And thanks for having me to talk about an exciting topic. But before you try to go, what is a cryptocurrency, I think you gotta answer this really simple question. What is currency in general? Any currency, right?
If you're talking about the euro, or you're talking about a bitcoin, or you're talking about a US dollar, at the end of the day, you're talking about a claim that you hold that can be easily exchanged into some sort of unit of value. And there's value that you're claiming. It can be a coin, if you will.
And it's really based on a really simple premise. The starting one is that this claim that you hold, is it trustworthy? Is there a foundation that you believe on that is creating that value? So what you could really argue is, much of what makes a currency is a belief system underlying the claim on that value.
And the second one is based on scarcity-- supply and demand on that claim. Do people want it, or is there too many of them moving out there? So if you look at it, if you notice, anywhere in the world you go, you can take a US dollar.
And the bottom line is that there is a belief system globally that greenback is a claim that has value. So if you walk into a bank, and you put that down in front of a teller, they will immediately think there is value to it, and they will take that claim and exchange it for something else. So it's really simple as that.
If you leave that bank branch anywhere in the globe, and you go, and you see a vendor somewhere, and you want to purchase something, if they see that greenback, they look at that paper claim and think it has value. And that ultimate belief system, and accepting that, and accepting that value is really what makes a currency go. So if you look at it-- go ahead, please.
- I was going to say, so that's the basics of a currency. Then what is the cryptocurrency? Because the currency, again, we all believe in it.
We all believe that it's redeemable everywhere. We all trust it. So where does crypto fit in?
- Well, believe it or not, I actually think that there's very little new with crypto, other than the technology that makes it happen. And so let me explain that. And if you go back and watch old Western movies, basically, Western movies are about currency, and they are about the value of currency. And if you go back to the 19th century, and if you rode around on a horse and buggy around the United States, what would you notice?
There's all kinds of working people trying to do something to get themselves some gold or silver coins. And the reason they were trying to get that gold or silver coin is because, everywhere they went, there were towns, there were banks, there were businesses that were creating their own currency. There was no middleman creating the value of that.
There was that currency, saying that I can exchange that for value of some sort. And what happened with that currency is that the United States went through 100 or so years of boom and bust cycles, of massive growth and then huge depressions. And by the time they got to 1913, they said, enough's enough.
And businesses and people and governments didn't want to function like that. So they created a central bank called the US Federal Reserve Board to stop all those little currencies. Now, cryptocurrency is basically the exact same thing.
We fast forward 100-and-some years forward. And we've had, especially for the last 50 years or so, incredible stability because of these central banks. And this stability, we've forgotten what it used to be like. And so instead of making it this kind of hard currency that we're using paper for, of course, we're using technology now.
We're using an electronic ledger now instead of writing it down in a local store somewhere. And we're exchanging it electronically. Simple as that.
And so really, I say the actual idea behind it is a very old one. It's the way we're using the technology as the piece, is the new one to it. But the fundamentals are nothing new.
- It's interesting, because, Brad, you and I talked earlier about the fact that the reason that bitcoin or-- there's ethereum, and I think there's, like, 4,000 other cryptocurrencies. They exist because they get to do it with the safety of the US dollar. The US dollar or any major, I'll say, fiat currency allows that to happen.
So I'm going to put the policy stuff aside for a second, and I want to ask you the big question. Because people are watching. Is it a good long-term investment? Is it speculation? How do you figure that piece out?
- Yeah. Look, first of all, I think you have to separate those two. One, to think about it as a long-term investment, is that using any conventional sense of the word, the simple answer is no. Bitcoin is theoretical at best, because it's wholly unregulated, and we really have no really known way of thinking about how all of this is going to play out.
Now, the next part of it is that, if you take a look at bitcoin, it is the most prevalent and most widely used of cryptocurrencies. But if you tried to put an investment primer around that, it supposedly has a first mover advantage. But that can easily be replaced with the cheaper, faster, more secure cryptocurrency that are always coming.
Regulations are going to change dramatically in its use. And then the long part, which is the big key, is that so much of the value of is it's anonymity. The rise and future of quantum computing is going to put a major risk to that as well. So I think a better way of looking at it is, instead of trying to measure it and think about it as in term of an investment, the other part of your question is, is it speculation? And there's nothing wrong with speculation. It's just, when you're deploying capital to it, thinking about it in those terms, instead of looking at it in investment terms.
- I truly only have 10 seconds here, but I do want to ask you, if someone decides they want to have some of that speculation in the portfolio, is there a way to do it?
- There is a myriad of ways. There is a handful of exchanges that allow direct investment into the coins themselves. There's a futures market in the Chicago Mercantile Exchange where you can gain access. And there's a number of avenues to Canadian investors and offerings that have came to the market over the last year.
And I would just say, make sure you do your homework. Read the prospectus. Understand what you're getting into. And really look at, on the side of a ledger of when you're allocating capital, that you're utilizing that speculation dollar instead of the investment one.
KIM PARLEE: Brad, always a pleasure. Thanks so much.
- Thanks, Kim.
[MUSIC PLAYING]
