‘Ethereum won’t put Bitcoin out of business’: Capital Wealth Planning Founder

Kevin Simpson, Founder and Chief Investment Officer of Capital Wealth Planning, joins Yahoo Finance Live to discuss outlook on cryptocurrency and the market.

Video transcript

- All right, Jared, we don't want you to go anywhere, because we do want to continue this conversation on cryptocurrency but also the markets. We're joined now by Kevin Simpson, Founder and Chief Investment Officer at Capital Wealth Planning. Kevin, great to have you with us.

So we just heard Jared talking about cryptocurrency. We've seen a lot of moves. And I think just about a year ago and even longer than that, I feel like so many people were shrugging off cryptocurrency as something that just a lot of millennials were purchasing, but not really anything that could be taken too seriously. And here now we're having serious conversations about a cryptocurrency that was originally based off of a meme.

How are you approaching the cryptocurrency conversation? How do you think investors should be approaching cryptocurrency in their portfolio? Should they stick with perhaps a Bitcoin, or should we start seriously looking at something like a Dogecoin?

KEVIN SIMPSON: Well, Kristin, great to see you. And I think that the conversation about the Dogecoin meme should be just that conversation only. I can't look at it as an investment. We are legitimizing some things that really were started out as a joke. I made a comment earlier this morning to one of my team members. I said the Dogecoin phenomena is making the 1636 tulip craze look legitimate. And I just can't get behind the Doge trade.

Now, he responded and he's a millennial and really into this stuff. He said well, you're old and right now Bitcoin is old. It's all about Ethereum. And I thought, OK well, can you explain that to me? And he said Ethereum, not only being a cryptocurrency and breaking $4,000, it's also an application. It's a utility. It has blockchain value that really makes this legitimate. So even though we don't invest in cryptocurrency, we are absolutely paying attention to it.

- So interesting that it seems like Bitcoin is for the old folks right now. Why do you think Ethereum is catching up to Bitcoin? I think all the Ethereum that's out there right now has a market cap of about $480 billion. But Bitcoin is over a trillion dollar market cap. It's incredible to even say that. But is it because Ethereum is behind the rise we've seen in these non fungible tokens, these NFTs?

KEVIN SIMPSON: Yeah, absolutely because you need that blockchain to create it. In fact, if you trade crypto, in many cases, it's the Ethereum blockchain that's allowing for those transactions to take place. So it's a fascinating discussion. I don't think that Ethereum is going to put Bitcoin out of business. But I think that there is tremendous validity to something within the blockchain space that has application. And clearly, this does.

- Kevin, I'm really glad that you mentioned tulip mania. That was about 400 years ago. By the way, my long term price target on Bitcoin is about $320,000 because way back 400 years ago, a single house was traded for a single tulip. That happens to be the median home price in the US.

But I want to stick with Bitcoin here and just get your take on how far the institutionalization of it. We've seen Tesla buy a billion and a half, PayPal and Square they got to put it on their balance sheet. We're also seeing Wall Street trading desk gearing up. How much of that is left, do you think? And how much short is needed to get the price of Bitcoin higher? Because we saw really institutional participation driving the price up, gains, I guess that we had earlier in the year and especially last year.

KEVIN SIMPSON: Well, that's a great point, Jared. And I think there's three, four, or five exchange traded funds that are in front of the SEC right now that are all applying to be able to create ETFs that will make Bitcoin more accessible to retail brokerage accounts.

So there are firms on Wall Street that are dedicating analysts to this space. They're dedicating resources to be able to trade this space. And when you have a limited supply and increasing demand, and to your point, whatever that demand may be caused by it tends to make prices go higher.

So we're looking as we invest in companies, not for their take on cryptocurrency, we're still looking at old fashioned balance sheets. I wanted to come on today with a 35,000 hat because the Dow broke over 35,000 and none of us were on the floor of the exchange to celebrate or blow whistles. But if we think about helping our investors, I want to stick to fundamentals. I want to stick to the basics. We're going to pay attention to cryptocurrency. But at Capital Wealth Planning, we're certainly not investing in it.

- All right, so Kevin, I do want to ask you then about the markets. We've been seeing lately a lot of euphoria, quite a bit of green. But there is still fear that exists in this market as well. What do you see right now as the biggest risks to equities? What should investors right now really be the most cautious of going forward?

KEVIN SIMPSON: Well, Kristin we got some really good news as bad news medicine on Friday with the jobs report. And by allowing the Wall Street pundits to relax on thoughts and fears of higher interest rates, Fed activity, hawkish comments, especially after Janet Yellen made some remarks about Fed tightening, that has a tremendous impact on stocks.

So if we see higher rates, we're going to see the stock market roll over. And for now we're looking at a dovish Fed and that's going to allow us to continue to move higher. But even as we look at these graphics, there's a tale of two markets here. We've seen a modest shift from growth to value over the past few months. And we've all talked about it together. I think that will continue as valuations and reality sets in.

Companies that continue to make money and increase earnings are going to be able to do well. Companies that pay dividends can sustain higher prices. Valuations on technology stocks have come down a little bit because there's only so much frothiness you can put in. You can only look at momentum forward valuations and then you start to think about things as far as how can these prices continue to go higher? Heck, we hit my year end target already.

So I think that the reopening trade will continue. I think the consumer will spend like crazy. I think stock markets can go higher. But to your point, we have to be careful. We have to be rational. And we have to be willing to get out of some names if we see things that express more weakness.

- And of course, looking over at tech, it is right now the laggard down about 1 and 4/10 of a percentage point. Kevin Simpson, Founder and Chief Investment Officer at Capital Wealth Planning. Thanks so much for joining us today.