Is bitcoin edging closer to a perilous plunge? David Kotok, CEO of Cumberland Advisors thinks so.
In an interview with Bloomberg, Kotok said, “I’m in the camp that says something that can be created infinitely with mathematical formulas and that is subject to hacking and the experiences we’re seeing is not a valid view. So cryptocurrency, that is in fact anything other than a hoax or an algorithm that can be repeated a hundred times and already is. It’s not something I would invest in.”
A “Price Fantasy Ratio?”
He continued, “I just saw a forecast today that said next year bitcoin will hit $18,000. Well, price fantasy ratios have been around for a while. Maybe this is a new one?”
Kotok tells clients if they want to wade into this market which has only a few years of history, you might make a lot of money in the short-term or you might lose it all.
He says “cryptocurrency, by the way, can work as a transaction medium but it has no stored value that we’re used to.”
Dollar and gold-backed crypto growing fast
Kotok points to the fast growth of dollar and gold-backed cryptocurrencies for one key reason – anonymity.
There’s a lot of players out in the world that would like to use a transactional medium and not have a record and not have it go through a traditional banking system. Unfortunately, these are the kinds of folks that threaten the United States and others who are engaged in transparent commercial activity.”
Kotok is confident we’re not going to be using algorithms instead of gold or silver to back reserve currencies anytime soon. “I’m on the side that 5,000 years of history with gold is a little stronger than five years with bitcoin.”
He cites the current decade-long period where interest rates are extraordinarily low thanks to central bank policies and said that distorts behavior over time.
Any professional in the financial services industry who’s under 40 has never experienced a climate other than interest rates which are rooted in the zero-interest rate policy. They’ve read about it in books, but they’ve never experienced it, so behaviors are entirely different but that will not last forever in my opinion. But what do I know?”
Kotok says we’re approaching uncharted waters, but he feels like he’s spent the past 50 years getting ready for the challenges ahead in the markets.
For a contrary, bullish view of cryptocurrency, read “Will bitcoin break $10,000 barrier by Dec 31?”
You can listen to the entire interview at Bloomberg.