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David R. Kotok
Thu Jul 27, 2017

For an in-depth discussion of blockchain and cryptocurrencies see the June 2017 white paper published by the World Economic Forum: “Realizing the Potential of Blockchain: A Multistakeholder Approach to the Stewardship of Blockchain and Cryptocurrencies” (

Bitcoin, Ethereum, Monero, Litecoin, Stratis, and many other strange names now collectively make up an asset class of about $100 billion. Bitcoin is about half of the total.

Wild price gyrations have characterized this speculative asset class with more than a hundred players. Its short history has spawned extraordinary future price forecasts in the new theater of cryptocurrency. I’ve read one forecast arguing that a bitcoin could bring between $12,000 and $55,000 within five years. Readers may follow these price gyrations at

In the very beginning, cryptocurrency was viewed as a way to make payments under the radar screen of government regulation and supervision. That is changing. Slowly an expanding number of legitimate businesses accept cryptocurrency as a payment method. They usually immediately convert bitcoins or other currency into the ordinary fiat money in use.

The near immediacy of a blockchain transfer facilitates transactions. Often there is a service fee similar to the charge for using a traditional credit or debit card.

So what started out as a mechanism for secretive transactions that could not be traced easily has now transitioned into broader usage.

But what about those wild price gyrations? Should we consider Bitcoin and its growing list of competing cryptocurrencies money? We think the answer is no.

We can think of a given cryptocurrency as a way to transfer money using a methodology that bypasses the traditional banking system payments we are accustomed to. Cryptocurrency transfer is a version of an electronic debit card. So it does permit the classic function of money as a medium of exchange.

But money is also a store of value. At least that is true of a currency with low or no inflation. And money is used to measure and account. Thus we have price references denominated in dollars or euro or yen. Bitcoin has not yet attained the ubiquity needed to meet those tests.

Will it do so? Here is where the debate intensifies. And the entry of speculators, whether long or short, and now an ETF, add to this fascinating evolution.

Some references are in order. Tom Lee at FUNDSTRAT estimates the total asset sizes of many categories. US Treasury obligations total slightly under $13 trillion. US stocks are the largest, at $22 trillion. Worldwide gold is third, at $7.5 trillion. Investment-grade bonds are about $7 trillion, and munis represent slightly under $4 trillion.

So Bitcoin and all the other cryptocurrencies combined barely meet the threshold of anything other than a speculation for an investor. For now, at Cumberland, we do not hold any cryptocurrency in any managed account, and we do not hold any ETF that represents a cryptocurrency.

We hope that answers reader’s questions that we have received over the last several months since Bitcoin tripled in price and then plunged and since some government intervention (by China) in cryptocurrency altered the landscape. We do not expect any major central bank to hold a cryptocurrency as a reserve for a long time, if ever.

We thank readers for some very thoughtful points raised during the last year. Cryptocurrency and blockchain evolution is fascinating. To that we agree.

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