Wednesday, 22 February 2017 08:09

It's Time To Beat Up On Credit Suisse and Their Woefully Misinformed Bitcoin Advice Featured

There is no such thing as a trustworthy trusted partyCredit Suisse has been posting cryptocurrency advisories over the last few weeks. They are quite one-sided, although couched in the appearance of objectivity. To explain why it's couched in the appearance of objectivity, and not actually objective, let me give you some background. 

The Obama administration enacted a law known as the Fiduciary Rule, as per Investopedia

The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation — and not simply giving ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.

Although the Trump administration looks like it will repeal this law. the question is still begged, what conflcts of interests and hidden "gotchas" are not exposed? Well, here are videos that explain why banks will likely never be pro bitcoin, regardless of how tranformational it may be.

 

So, if banks are not going to benefit from Bitcoin, chances are their employees are not going to support bitcoin. Who are the most published bank employees? Analysts, to wit, Credit Suisse, stage left - Is Bitcoin Safe?

Bitcoin does carry some unique risks. The value of the cryptocurrency has been three times as volatile as the price of oil and 11 times more than the post-Brexit exchange rate between the dollar and the British pound.

With all due respect, this is a very ignorant, malinformed, incomplete viewpoint. I actually do mean that with respect intended. I'm not trying to maligh Credit Suisse, but... Look at this: 2+2=?.

Tell me, what do you get from that? If you said 4, then you get my point. To really gather meaning from an equation, you have to look at both sides of the equal sign. Credit Suisse state the unique financial risks of bitcoin, yet ignores the very unique financial benefits. Look at these numbers from a guy who does not have a financial or stragetic inventive to downplay Bitcoin.

Annually, since 2011, Bitcoin has had 75x the volatility as WTI crude oil. Credit Suisse (who gave a much lower vol. number, but that depends on how often you sample the data) will have you believe that is bad, but for long investors, volatility is not the enemy. The enemy is downside risk. When you strip out upside movements, which is what we all really want, Bitcoin only has .15x more downside risk than oil. Wait! I'm not finsished yet. Remember, we need to look at both sides of the risk/reward equation. When comparing the upside, BTC has 203x the average excess return of WTI crude oil. To be clear, .15x more downside risk, and 203x more upside. 

Credit Suisse, are you sure you made a valid comparison between oil and bitcoin?

Bitcoin vs WTI crude oil risk and returns

Hey, it's not just Credit Suisse, its all of the major banks and central banks as well. It's also the Financial Times, the London Business School and CNN Money, amomt many, many others. Reference 

 BTW, these numbers hold up just as well for the comparison to GBP as well. As compared to the GBPUSD forex pair, Bitcoin has 333x the volatity, but onl 7x the downside risk (remember, if you're holding long, you ony want to concern yourself with prices going down, not up), and 1,017x the return. Again, Credit Suisse, as financial professionals, what the hell were you measuring?

Bitcoin vs GBP risk and returns

Now, of course, Credit Suisse did have some positive things to say about bitcoin - just not the stuff you can invest in directly, to wit: Forget Bitcoin, but Remember Blockchain? Why, you ask? Well, banks are attempting (not necessarily wholeheartedly, though) to rebuild there backends on top of technology that underpins bitcoin. Of course, since banks don't make markets in bitcoin (the token) itself, it's too risky for their clients (unless said clients read BoomBustBlog). Next up, I will show all how to create a bitcoin investment portfolio an blend it into your more conventional investments. If you are interested in such, you'd probably want to catch up by reading these:

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Last modified on Thursday, 23 February 2017 08:26

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