Jodie Gunzberg, CoinDesk Indices Managing Director, says volatility is one of the most challenging things facing investors looking at crypto, driven by geopolitical, regulatory, and other risks.
– Welcome back. Let’s get a check of the cryptocurrency markets now. Bitcoin prices are trading slightly higher this afternoon currently up just over 1% to just below $49,000. Now, for more we’re welcoming in Jodie Gunzberg, CoinDesk Indices Managing Director. Jodie, it’s great having you back on, and cryptocurrency prices have had yet another roller coaster year in 2021. For those investors who have perhaps watched this price action from the sidelines, how would you suggest they break into the space and manage the risks and volatility that have become inherent in the crypto space today?
JODIE GUNZBERG: Yeah, the volatility has been probably the most challenging things that investors have faced with investing in Bitcoin and crypto in general. So you know, a lot of these risks are market risk, the technology risk, the geopolitical risk, and they’re not unique to crypto. I think they’re just magnified since the asset class is emerging. And the major theme going into 2022 will be to manage that volatility.
So the three main ways we see that are one is first by diversifying into broad baskets. So beyond Bitcoin and into other large caps in the space. Second would be across sectors. And we’ve defined sectors, industry groups and industries, through a recent digital asset classification standard to help investors invest by industry groups that are appropriate.
And then another way really will be their ability to pick the manage volatility versions of single coins if they want to do that. So for example, like, buy Bitcoin with a target volatility of 15%, which could be really attractive to people that would accept risks similar to equities but like the diversification.
– Jodie, I want to bring up something with you that we hear from some respected people repeatedly that Bitcoin is worse– this was an article in the FT today– that Bitcoin is worse than a Madoff-style Ponzi scheme. And for the record, I sound like the grandpa who starts to forget things. I interviewed Madoff in jail years ago.
Here’s what– and help us understand because crypto can be complex. But at the end of the day, this article fails to address the efficiencies in payment processing that blockchain and cryptocurrencies offer. And they don’t address that. And is that what the crowd that says Bitcoin is a Ponzi scheme totally misses?
JODIE GUNZBERG: I don’t see the similarity between Madoff and Bitcoin, but what I do see is a similar pattern in how investors are behaving. And what I see is that many investors that were caught in Madoff failed to do their homework. So they missed the red flags by following their trusted crowd of wealthy friends and advisors.
And what I see in Bitcoin is the same lack of due diligence where many Bitcoin investors are just failing to understand the fundamental concepts of the cryptography mixed with the blockchain that is the underlying technology requiring the multiple computers to verify all the transactions on this network to effectively decentralize the ledger.
So you know, the due diligence piece is the similarity I see. And given this lack of knowledge is why precisely we launched our CoinDesk Indices Digital Asset Classification Standard so that investors can understand the industries of digital assets so they can properly utilize them to meet their financial goals.
– But isn’t the value of a Bitcoin or of– of a DeFi currency or digital asset the incredible speed and efficiency? You get real-time payment transfer whereas in the current system it can be a three-day lag, seven-day lag depending on how you’re processing.
JODIE GUNZBERG: Time, cost, transparency, the decentralization are all values that the Bitcoin software is bringing to the world. And again, it’s the technology that underlies that software. The combination of cryptography and blockchain that can be applied across so many different industries is where the value lies.
So will Bitcoin be the ultimate winner if we look back 10 or 20 years from now? I don’t know. You could have asked that same question about AOL versus Apple in the ’90s, right? So I think that’s why investors are trying to manage their risk by diversifying across many of the cryptos that use this technology rather than trying to pick the single winner itself.
– Jodie, one of the things you point out in your note is that digital assets like Bitcoin, of course, are priced in US so generally move inversely with it. Are investors still using Bitcoin and cryptocurrencies as an inflation hedge in your view? And should they be continuing as we think about the macro landscape in 2022 and beyond?
JODIE GUNZBERG: They are, and for a very small investment, you can get a very big relative inflation hedge, nearly five times what you can get with commodities. Because the relationship is so solidly inverse between Bitcoin and the US dollar. So not only will the Bitcoin hedge in the US, but it’s also helping investors globally, especially in places in South America that have really high inflation.
So yes, we are seeing that. We’re also seeing it within this rising interest rate. With moderately rising rates, it’s obviously not good for growth stocks or bonds. And it happens to be a really favorable environment for Bitcoin. It does well with moderately rising rates.
– All right, we’ll leave it there for now. Jodie Gunzberg, CoinDesk Indices Managing Director. Thank you so much for your time.