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Why crypto is a risky investment strategy

Yahoo Finance's Editor-in-Chief Andy Serwer joins Myles Udland, Brian Sozzi, and Julie Hyman to discuss investing in bitcoin and the risks associated with cryptocurrencies.

Video transcript

MYLES UDLAND: All right, welcome back to Yahoo Finance Live on this Monday morning. Mixed picture for stocks, but all of the action this morning happening over in the crypto markets. Huge rally on our hands across the cryptoplex. Bitcoin up about 10% or so at last check, so the inevitable question up 12% here, 38,000 and some change. The inevitable question, as always with the crypto spaces is, do you need to own some? How much should you own?

How would you even go about doing that? In his column over the weekend, Yahoo Finance Editor in Chief, Andy Serwer, writing a little bit about that question. Andy, certainly, we've had a lot of conversations around the price of Bitcoin, what it means, what it doesn't. I guess I would just start this by asking you, what do you think about Bitcoin as part of, to use some strategist speak, a balanced portfolio, diversified portfolio, covering all your bases across financial markets?

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ANDY SERWER: It is really a tough question to answer, Myles. Because unless you, A, fully understand it, and B, fully believe in it, it's hard to put any money into it, right? And I have questions about both of those two questions, which is to say, you know, do I understand it? Yeah. Is my brain fully wrapped around it? No.

Am I absolutely certain that it's legit? Not absolutely certain, so why would you ever put money into something, like that? I mean, it's one thing to say, oh, I don't really get the Tesla business model model, but they're sure as heck making cars. And this is leaving aside the valuation question.

That's like, OK, I believe in Tesla a little bit. I like the cars. They're great cars. I'm just going to put a little mad money in, right?

But with crypto, you know, it takes another step, another leap of faith to get yourself there. On the other hand, when you see what it's done over the past 12 years, boy, are you just killing yourself for not having something in there, anything, a little bit. You know, that's where you have to make a decision, I think.

JULIE: Well, and to your point, Andy, if you look at the big institutional upsurge in interest in cryptocurrencies, I think you can probably argue that not all of them believe in the fundamental case that they are trading it based on price movement. And if it's good enough for them, maybe it's good enough for individual investors, although, individual investors tend to have fewer resources. But why not throw a little money? I guess then the question becomes, how much is a little money? And what is the right amount for individuals?

- Well, it's so weird, Julie. I mean, listen, tulip bulb mania in the 1600s in Holland worked for a while, until it didn't. I mean, there was no there, there. Now, the tulips bulbs actually had some value, but it was, like, 1/100 of what they ultimately were at the peak.

And then you look at something, like Dogecoin, which was made as a joke, and has a market value of $25 billion, and Elon Musk has acknowledged he has money in it. OK, let's just put those aside. So if you look at Bitcoin, and Ethereum, and things like that, that ripple, that actually maybe have some value, yeah. Should you put a little bit of money in?

I sort of came out, like, yes, and I kind of came out on about 1%-- so to me, that-- --of your investment portfolio. So that kind of gets pretty close to my mind of mad money. So if you got $100,000 to invest, you put $1,000 into it. If it's going to be worth $5,000, 10 years from now, you're a hero. If it goes to $0, you're going to be OK still.

BRIAN: Andy, you've spent the past decade, writing a good bit about Fang stocks. But now, these companies, they have giant market caps. It's hard to believe they will grow at the same rate they did compared to the last decade. Are the likes of a Coinbase, a SoFi, a riot blockchain, are these next Fang stocks of the next decade?

- Yeah, it could be, and you know, Brian, that was another point in my article. I mean, Myles Udland is sick to death of me talking about big tech being the trade of our lifetime. And I realize, yeah, I've been saying this for a long time now, like, you know, 25 years. So is it possible that the sweet part of that trade is over, particularly for the Fangs when they have the tyranny of large numbers working against them, A, and B, the government increasingly scrutinizing their business models? Which is not to say that Fangs are over, but is the best part of that trade over?

And are these new crypto oriented plays a better place in terms of a long standing uptrend? I mean, what I described about Bitcoin, which is it goes up, it goes down, it goes up, it goes down, but it's always going bottom left to top right. Isn't that the very definition of a buy and hold, right? A long term investment, and I would answer unequivocally, yes, except for the fact that I'm not completely comfortable with the very underpinning of the financial asset.

So that makes it much more complicated. If I was, in other words, if this was Apple, Nvidia, or Tesla, I would say, put 5% in. But because I don't really get it, to be completely honest, I mean, I get it, but I don't really get it. I'm more conservative, much more conservative here.

MYLES UDLAND: Yeah, I mean, you can talk about volatility. It wasn't like Amazon went up in a straight line, but you can-- We've all watched the old 60 Minutes clip of them covering Bezos in '98 or something. And they talked to an analyst, and the analyst said, well, they sell books. And it's a pretty good business, like there was at least something there that you could disagree or agree on the premise of it.

But there was a product there that you could understand, and I think the difference is there's a fear, Andy, right? That you are not going to buy the thing that 10,000 X is, but is the case for Bitcoin as straightfoward maybe as-- you know, think about Munger's Google thing. Well, we use it a lot for Geico. I should be able to figure that out, right? I'm not sure, if there's a similar case for Bitcoin, but maybe fear of missing out was worth 1%.

- Yeah, that's the FOMO thing, and I mentioned that, Myles, and your grandchildren calling you an idiot. You didn't buy Bitcoin at 30k? You're an idiot. Grandpa, how could you have missed that, you know? I mean, that is the thing. But you know, even Bitcoin itself has failed, you could argue, at its fundamental premise, which is to say, it's supposed to have been this great facilitator of commerce and used to conduct transactions.

And, in fact, it's much more of an investment, and even, again, Elon Musk admitted this past week that it needs layers. It needs layers to actually make it work, and right now, it's just the thing that trades. You'll have to get your brain around it.

MYLES UDLAND: Yeah, no, I agree. I will say, though, to the point of about $30,000, and you know, I've written about this before. We've talked about it before. It does seem like it's not the right price, like it does seem that Bitcoin is either probably worth 10, 100 times what it is now. Or it's worth nothing. 30,000, 40,000 feels like it's splitting the difference that I'm not sure anybody's really happy with. So then you come out, and you've got to buy it, right?

- Right, and another fact, that little factoid about only about 1% of the total value of Fiat currency.

- Sure.

- Right? So, what does that tell you? I don't know.

- There you go. All right, it's Andy Serwer. Andy, interesting conversation that I know will continue as we head forward here, and we'll figure out which grandpa ends up being an idiot in the end. The one who lies, and the one that sticks to good, old thing.