Insights & Advice


Sit here in your Bitcoin chair

Bitcoin crashed. Again. It got cut down by more than half the high it made on April 13, 2021. Though, let’s be honest about it. By the time this column goes to print, it could have restored its losses.

I don’t own Bitcoin. Or any cryptocurrencies, for that matter. I know lots of people who do, including at my workplace. I’m not against it. I tell everyone who has the aptitude to do so, “Go ahead and trade it. So long as you know the risks and have an exit plan, trade it.”

I know — I’m an old man with archaic views. Call me crazy, but I think that an unstable currency is useless in the long run (and risky in the short run). Nonetheless, to paraphrase one of my favorite corporate celebrities, “I hope it goes to the moon!” And it’s not just because I want my friends to get rich. Although I hope they do. I want Bitcoin to do well because I fear that it’s a potential harbinger of risk appetite for other places where I invest — like stocks.

Is the meltdown in Bitcoin warning us that we should get out of the stock market? The “diamond hands” owners of Bitcoin don’t ask that question. (“Diamond hands” refers to Bitcoin speculators who refuse to sell the currency no matter how much it drops in price.) They’ve been through this before. Heck, on March 12, 2020, Bitcoin prices plunged 39 percent in a single day. That decline was part of a decline that cut its price by almost two-thirds during a couple of months. And there were undoubtedly other crashes — a dozen price reductions of 30 percent or more.

Even with this most recent drop, there hasn’t been a lot of selling, at least as of May 17, 2021. Digital currency manager CoinShares reported that there were record outflows for that week. Outflows for Bitcoin products totaled $98 million, or a mere 0.2 percent of Bitcoin assets. For comparison, in 2020, speculators put $15.6 billion into Bitcoin products. Much of that $98 million of outflows made their way to a competing cryptocurrency, Ethereum.

Or, more accurately said, a lot of those outflows tried to make their way to Ethereum. Apparently, some of the Bitcoin sellers accidentally confused Ethereum with furnituremaker Ethan Allen and sent the company’s shares surging. Silly as that may be, I reject the notion that the crash of Bitcoin is the proverbial canary in the coal mine (to use a cliché suitable to an old-timer like myself). Instead of running from risk, investors continue to chase risk. I’m not saying that’s good. I’m just saying that I don’t consider it a harbinger of things to come. At least, not at this time.

Besides, according to MorningStar, the correlation between stocks (as measured by the S&P 500) and Bitcoin is 0.01, or almost non-existent. They can simultaneously go up or down, but doing so appears to be more coincidental than causal. It makes a lot of sense to me that the two should be connected, but the math says that I am wrong.

I am concerned about a lot of things that have to do with the stock market. But a Bitcoin meltdown isn’t too high on that list.

Housing bubble?

Should you buy a house? There are a lot of factors that go into answering such a personal question. Today I’ll just focus on the most macroeconomic of those factors — is housing in a bubble? A quick answer, no it isn’t. But I wouldn’t blame you if you wondered if it is.

U.S. house prices were up 10.4 percent in 2020. According to the National Association of Realtors, listed homes are on the market for a median of only 18 days, and 83 percent of homes are sold in less than one month.

The housing bubble in the late 2000s was primarily sparked due to poor lending standards. People who could not afford to buy a house were allowed to do so. Unlike the mid-2000s, people can afford to buy their homes today. Cash sales account for about one-fourth of sales, and banks typically won’t lend to a first-time homebuyer for more than 80 to 90 percent of its value. In 2020, nearly three-quarters of homebuyers using conventional loans had FICO scores above 750, and 93 percent had scores above 700, according to an Origination Insight Report.

Mortgage rates will rise in the short term and price some new buyers out of the market. But those rates are low enough, and demand is high enough, to support costs. Housing prices will slow, probably to about 7 percent in 2021, and then something closer to the rate of inflation. While localized bubbles are possible, the U.S. housing market is not in a bubble.

Allen Harris is the owner of Berkshire Money Management in Dalton, Mass., managing investments of more than $600 million. Unless specifically identified as original research or data-gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable. Full disclosures. Direct inquiries: email hidden; JavaScript is required

This article originally appeared in The Berkshire Edge on May 24, 2021.