Q: Tech and crypto are most susceptible to Fed quantitative easing. Why is this?
A: Technology and crypto are growth stocks. When interest rates are rising, historically, growth stocks underperform.
When interest rates are falling, growth stocks tend to outperform value. Growth stocks are looking for earnings some 10 years into the future.
I’m not a fundamental analyst, but when you look at the calculator, and you start seeing interest rates going up, those multiples just get crushed. This is why, when rates are rising, you tend to see the more value-oriented sectors outperforming: things like energy and industrials and healthcare. And guess what? We’re seeing exactly that right now. With rising interest rates, technology is underperforming. Growth stocks are underperforming. Cryptocurrencies are underperforming. So it’s perfectly normal. To expect anything else would be crazy.
There’s precedent for this. Look at the 2000s: ‘04, ‘05, ‘06, ‘07. That whole period, the stock market was ripping. Everything was great. And technology was an afterthought. Growth stocks were an afterthought. You wanted to be in financials and energy, emerging markets (the old emerging markets, not the new tech ones). Back in the day, it was more of a commodity-based uptrend, banks, the types of names that do well in rising rate environments.
Since the June lows that we got in the market, we’ve seen higher lows in small caps, mid caps financials, industrials, healthcare—all of those more value-oriented areas. And you saw lower lows in technology and a lot of internet stocks; that’s the relative weakness. So again, in a rising rate environment, all of that is perfectly normal.
Q: Given horrific performance tumbles this year, why would investors still want to have exposure to crypto?
A: I have exposure to crypto because I think it goes up. If you don’t think crypto is going up in price, then don’t have exposure to it. It’s very simple. I plan on having exposure to cryptocurrencies moving forward because I think they go higher, specifically from a risk versus
reward standpoint. If Ethereum and Bitcoin are above their former cycle’s peak (and they are), I’m in across the board.
Q: Is investing in certain tech brands a good way to indirectly invest in crypto?
A: I actually do think that. MicroStrategy Incorporated (MSTR), for example, holds quite a bit of crypto; something like 13% at the moment. If you buy that stock, you’re buying a high exposure to crypto.
Another way to indirectly get access to crypto is through ETFs. Bitwise Crypto Industry Innovators ETF (BITQ), for example. The top holding is Coinbase. The second largest holding is MicroStrategy. It also contains Blockchain and Marathon; some of the coin miners. Let’s say you have an IRA, in which you can’t directly hold Avalanche or whatever altcoin you’re looking to buy. ETFs or individual names with high correlation to Bitcoin and other crypto are a way to play by the rules and get exposure.
Q: What are the implications of gaining exposure to crypto in this way?
A: I mean, listen, if you don’t have to make an indirect buy, don’t. If you think something’s going up, buy the thing you think is going up. Don’t look for derivatives of it. But in some cases, that’s not an option. RIAs for example, who sometimes want to put their clients into certain assets, are limited from a regulatory perspective.
In cases like these, exposure via ETFs or tech stocks that offer higher crypto exposure serve that purpose for professionals. Individuals can do the same thing. It really just depends on who you are and what your goals and limitations are.
Q: Anything else you’d like to add?
A: There’s no right answer for everybody. Every investor is different and has a different objective, risk tolerance, time horizon, etc. Some investors are just starting out investing and need to start off small. There’s a way to do it if it’s right for you, but crypto is not for everybody.
Q: Where can I learn more?
TIFIN Wealth operates under multiple RIA firms and a Broker Dealer. Please see the individual solution webpages at tifinwealth.com for relevant disclosures. TIFIN Clout is not a registered investment adviser and does not offer investment advisory services.