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Bitcoin and Other Notes From the CFA’s Financial Analysts Seminar

Ahead of this year’s Financial Analyst Seminar (FAS), the CFA Institute sent attendees reading material for a case study on bitcoin. The case study centered around a hedge fund manager who was asked by a large client why he wasn’t allocating to bitcoin.

Keep in mind, this assignment was given to a group of investment professionals from across the globe. (I personally spoke with attendees from Canada, Slovenia and South Africa.) Out of approximately 70 attendees, only about five said they currently are or would hold bitcoin in their portfolios. I was not among those five.chart

Still, some interesting points came out of the discussions held in small breakout groups and later in a main session moderated by University of Virginia professor George (Yiorgos) Allayannis. First, bitcoin is hard to use as a currency because of its volatility and slow transaction speeds. Visa does offer a bitcoin debit card, but questions were raised about how easy it is to use the card. Second, like real estate, location matters greatly. The cost of electricity where bitcoin is mined and the exchange the cryptocurrency is sold on significantly impact your profits. Plus, because of both geographical (being in a place with cheap electricity) and liquidity hurdles (it’s often not easy to quickly move money from one exchange to another), taking advantage of the arbitrage opportunities that do exist is very difficult. Third, a few attendees pointed out that while bitcoin prices are being driven by supply and demand, the supply can change. A simple majority vote among bitcoin owners can either alter or remove the current limit on the number of coins than can be mined. Finally, bitcoin’s role in a portfolio is still unknown. Although it has been uncorrelated to all other asset classes so far, we don’t have enough history to know whether this will continue to be the case.

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The week’s first economic report will be June pending home sales, released on Monday. Tuesday will feature June personal income and spending, the second-quarter employment cost index, the May Case-Shiller home price index, the July Chicago Purchasing Managers’ Index (PMI) and the Conference Board’s July Consumer Confidence survey. July motor vehicle sales, the July ADP employment report, the July PMI manufacturing index, the July Institute for Supply Management (ISM) manufacturing index and June construction spending will be released on Wednesday. Thursday will feature June factory orders. July jobs data—including the change in nonfarm payrolls and the unemployment rate—as well as June international trade numbers and the July ISM non-manufacturing index will be released on Friday.


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