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Crypto Long & Short: The Battle of the Yields


“Cash is trash” has a nice rhyme to it, and in some inflation-ravaged paper-based economies it's literally true. But as an investment mantra, it bears some scrutiny, especially in light of what it says about bitcoin. When a multi-asset manager such as Ray Dalio uses that phrase, as he did in Davos earlier this year, we can assume he means that cash is not as attractive for portfolios as other assets. He expanded further on this in a question-and-answer session on Reddit earlier this month, pointing out its “costly negative return.” You're reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk's head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week — with insights and analysis — from a professional investor's point of view. You can subscribe here.

This warrants further clarification, as the actual yield on cash is a complex subject. The cash under your mattress does not earn any interest and has a theoretical storage cost. (Even if there’s no direct outlay, there’s the cost of a lack of solid rest due to bumpy sleep surfaces.) And there’s the opportunity cost — just think of all the potential returns you’re forgoing by not investing in stocks or bonds (oh wait...). The cash in your bank account is also unlikely to produce meaningful income. And we now have the very real possibility that banks will start to apply negative rates to cash holdings, as part of a mandated strategy to stimulate spending. (Note that I’m not saying I agree with this rationale, just that it’s often trotted out. There’s an opportunity cost to not having cash around, as well. And many renowned investors are flush with cash, preferring to have “dry powder” for when opportunities arise.) A bigger-picture way to look at cash returns is the real yield, which incorporates inflation. We are already seeing a dip in inflation as spending plummets due to lockdowns, but once economies re-open and the stimulus checks are used to purchase everyday items made relatively scarce by supply chain constraints, inflation is likely to edge or even surge upwards. Read More...

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