As I write this, shortly after 7:00 am on Saturday, February 6, 2021, Ethereum is trading at $1,683, just slightly below its all-time high of $1,764 reached yesterday.
On January 11, 2021, it bottomed at $905, so if you timed it well you are sitting on a very large profit. If you didn’t time it well, you are also sitting on a nice profit. Here’s what you need to know:
The most popular cryptocurrency is Bitcoin. The big institutional investors are moving, slowly, into Bitcoin as a reserve, treasury, asset. That makes sense because if other big institutions are buying it, you won’t get criticized for also buying it. As I write this, Bitcoin is trading at around $40,000, not far from its all-time high of $42,000 reached on January 8, 2021. If you own Bitcoin, you are doing well.
But, Bitcoin is not perfect. It is difficult to use as a medium of exchange, because it can take 20 minutes for a transaction to propagate on the blockchain. Imagine tapping your debit card to buy a coffee at the coffee shop and having to wait 20 minutes for the transaction to complete. That won’t work.
I’m not going to go into a long explanation of Ethereum technology, but I will say that while it is also blockchain-based, the process is different, and therefore has different applications. The Ethereum blockchain can be used for smart contracts, and numerous other applications, many of which have yet to be discovered.
I am not saying that you will be buying coffee with Ether tomorrow. You won’t. (Ether is the proper name for the cryptocurrency based on the Ethereum blockchain, but everyone refers to it as Ethereum). But I do expect Ether to outperform Bitcoin in the short term.
I expect to see $2,000 USD Ether in February, and it is a good bet that we will see $3,000 Ether in February as well.
However, I will also caution that Ether is more volatile than Bitcoin, so you should expect that sometime before the end of the spring we will experience a “correction” of 30% or more in Ether. If Ether does touch $3,000, a retest of $2,000 is likely, so if you are playing it, taking profits would be prudent.
How do you play it?
First, because cryptocurrencies are very volatile, I would not “bet the farm” on them. Bet only what you are prepared to lose. This is a speculation, not an investment. Based on your risk tolerance, a portfolio allocation of somewhere between 1% and 10% may be reasonable.
If you are sophisticated, your best option is to buy and store the crypto yourself. You register on an exchange, transfer fiat money (dollars) to the exchange, and buy your crypto, just like you buy a stock. But unlike a stock, where you leave the shares in your account at your broker, you then transfer your crypto to a storage wallet that you control. The storage wallet, likely employing a physical device that stores your keys, is not connected to the internet (unless you connect it), so it can’t be hacked (unless someone has your password keys). An exchange can be hacked, which is why you don’t leave your crypto on an exchange, except when you are trading.
Not your keys, not your coins.
If you are playing with large dollars, it’s more complicated, since you will want to transfer more than your Interac daily limit to the exchange to trade. Do your own research.
Or, you can buy an exchange-traded fund. In Canada, your options are:
- The Bitcoin Fund, either QBTC that trades in Canadian dollars or QBTC.U that trades in USD.
- The Ether Fund, either QETH.UN (Canadian dollars) or QETH.U (USD).
These funds are very convenient because they trade on the Toronto Stock Exchange, and you can buy and sell them like any other security traded on the TSX.
The disadvantage is that unlike crypto itself, which trades 24/7/365, you can only trade when the exchange is open, so if the market crashes on the weekend, you have to wait until Monday to get out.
Another disadvantage is that these funds can trade at a premium to Net Asset Value.
On Friday, QETH.UN closed at $49.00, and its NAV per unit was $38.9338 for a premium of 26%, which is massive. In contrast, QBTC traded at only a 2% premium, due to more liquidity, I assume. It is likely that the premium will erode over time, so you are taking a risk buying on the open market.
If you are an accredited investor, you can buy into the funds directly through a private placement. You contact 3iQ, the sponsor of the funds, they send you the paperwork, you send them the money, and each day you can buy in at close to NAV, but you are then subject to a six month hold period. If you think Ether will be higher in six months, that’s a good play, because you avoid the 25% premium.
Should you buy? That’s up to you. I don’t know the future. I do know that the feds in all countries are printing dollars like crazy, so it’s a guarantee that the dollar will be worth less, so as a store of value, crytpo makes sense.
Do your own due diligence, and don’t invest if you don’t understand it.
That’s the idea. Thanks for reading. More next week.
Ethereum: The Best Crypto Investment?
by JDH on February 6, 2021
As I write this, shortly after 7:00 am on Saturday, February 6, 2021, Ethereum is trading at $1,683, just slightly below its all-time high of $1,764 reached yesterday.
On January 11, 2021, it bottomed at $905, so if you timed it well you are sitting on a very large profit. If you didn’t time it well, you are also sitting on a nice profit. Here’s what you need to know:
The most popular cryptocurrency is Bitcoin. The big institutional investors are moving, slowly, into Bitcoin as a reserve, treasury, asset. That makes sense because if other big institutions are buying it, you won’t get criticized for also buying it. As I write this, Bitcoin is trading at around $40,000, not far from its all-time high of $42,000 reached on January 8, 2021. If you own Bitcoin, you are doing well.
But, Bitcoin is not perfect. It is difficult to use as a medium of exchange, because it can take 20 minutes for a transaction to propagate on the blockchain. Imagine tapping your debit card to buy a coffee at the coffee shop and having to wait 20 minutes for the transaction to complete. That won’t work.
I’m not going to go into a long explanation of Ethereum technology, but I will say that while it is also blockchain-based, the process is different, and therefore has different applications. The Ethereum blockchain can be used for smart contracts, and numerous other applications, many of which have yet to be discovered.
I am not saying that you will be buying coffee with Ether tomorrow. You won’t. (Ether is the proper name for the cryptocurrency based on the Ethereum blockchain, but everyone refers to it as Ethereum). But I do expect Ether to outperform Bitcoin in the short term.
I expect to see $2,000 USD Ether in February, and it is a good bet that we will see $3,000 Ether in February as well.
However, I will also caution that Ether is more volatile than Bitcoin, so you should expect that sometime before the end of the spring we will experience a “correction” of 30% or more in Ether. If Ether does touch $3,000, a retest of $2,000 is likely, so if you are playing it, taking profits would be prudent.
How do you play it?
First, because cryptocurrencies are very volatile, I would not “bet the farm” on them. Bet only what you are prepared to lose. This is a speculation, not an investment. Based on your risk tolerance, a portfolio allocation of somewhere between 1% and 10% may be reasonable.
If you are sophisticated, your best option is to buy and store the crypto yourself. You register on an exchange, transfer fiat money (dollars) to the exchange, and buy your crypto, just like you buy a stock. But unlike a stock, where you leave the shares in your account at your broker, you then transfer your crypto to a storage wallet that you control. The storage wallet, likely employing a physical device that stores your keys, is not connected to the internet (unless you connect it), so it can’t be hacked (unless someone has your password keys). An exchange can be hacked, which is why you don’t leave your crypto on an exchange, except when you are trading.
Not your keys, not your coins.
If you are playing with large dollars, it’s more complicated, since you will want to transfer more than your Interac daily limit to the exchange to trade. Do your own research.
Or, you can buy an exchange-traded fund. In Canada, your options are:
These funds are very convenient because they trade on the Toronto Stock Exchange, and you can buy and sell them like any other security traded on the TSX.
The disadvantage is that unlike crypto itself, which trades 24/7/365, you can only trade when the exchange is open, so if the market crashes on the weekend, you have to wait until Monday to get out.
Another disadvantage is that these funds can trade at a premium to Net Asset Value.
On Friday, QETH.UN closed at $49.00, and its NAV per unit was $38.9338 for a premium of 26%, which is massive. In contrast, QBTC traded at only a 2% premium, due to more liquidity, I assume. It is likely that the premium will erode over time, so you are taking a risk buying on the open market.
If you are an accredited investor, you can buy into the funds directly through a private placement. You contact 3iQ, the sponsor of the funds, they send you the paperwork, you send them the money, and each day you can buy in at close to NAV, but you are then subject to a six month hold period. If you think Ether will be higher in six months, that’s a good play, because you avoid the 25% premium.
Should you buy? That’s up to you. I don’t know the future. I do know that the feds in all countries are printing dollars like crazy, so it’s a guarantee that the dollar will be worth less, so as a store of value, crytpo makes sense.
Do your own due diligence, and don’t invest if you don’t understand it.
That’s the idea. Thanks for reading. More next week.