Investors should remember that cryptocurrencies are very complicated and disruptive applications. There will always be smart people who either don’t understand the technology, ignore it, or reject it entirely. But on Wall Street “price is truth.” This means, the age and market capitalization of these assets tells you everything you need to know. Once you clearly see how fast these assets are growing the objections seem less meaningful.
Over the past few years, the Cryptocurrency industry has been making headlines nearly every week. Many people have gotten very wealthy investing or leading the cryptocurrency industry. At the same time, many people have lost a lot investing in the industry. In addition, more people have been scrutinizing the ecological impact of crypto mining, as well as its potential facilitation of illegal activity. What is being done and what can be done to address these concerns?
In this interview series called “5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency” we are talking to leaders in the cryptocurrency industry, as well as successful investors, who share insights from their experience about how to successfully invest in Cryptocurrency.
As a part of this series, I had the pleasure of interviewing David Kreinces.
David is the founder and chief investment officer of ETF Portfolio Management (ETF PM) and the direct manager of ETF PM’s separate accounts. He is also the creator of InvestableBenchmarks.com, and author of “Investable Benchmarks: A Guide to ETFs, Technology and Leverage.” You can often find Kreinces sharing his research and market insights as co-host of the Investable Benchmark Update podcast, and as a judge on the YouTube web series ETF Battles.
Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit. Can you tell us a little about your backstory and how you grew up?
Sure, I grew up in Dix Hills, New York, on Long Island, and I was introduced to the financial markets through my dad and our three daily newspapers. My father was a pediatric dentist who managed his own investments. However, he didn’t have much finance experience. Since money was tight, my brother and I often worked part-time jobs and projects to earn extra cash. Watching my dad build his dental practice and his investment portfolio was what ultimately inspired me to follow my passion in launching my own financial advisory firm.
Is there a particular book, film, or podcast that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
It’s hard to choose. David Swensen’s book, “Unconventional Success,” inspired the creation of our passive investable benchmark portfolios, and Michael Covel’s book, “Trend Following” helped me develop ETF PM’s active investment algorithm. Ron Insana’s book, “Message of the Markets,” helped me to become a trend following investor early on, yet it was actually Rhonda Byrne’s movie, “The Secret,” that has had the biggest impact on my life.
In “The Secret” a number of folks explain their understanding of the “Law of Attraction,” and how their experience managing their mind and their thoughts quickly led to maximizing their happiness. Researching this topic caused me to realize that I was sabotaging myself through a lack of awareness about thought management. Learning about the Law of Attraction and proper mind and thought management changed my way of thinking. Shockingly, within a few short years, I experienced huge improvements in my business, health, happiness, and life in general.
Is there a particular story that inspired you to pursue your particular career path? We’d love to hear it.
Like many kids I had early hopes of being a professional athlete! I distinctly remember reading the newspaper when I was playing little league and learning that Dave Winfield was the first player to earn a 1 million dollars salary. However, in the same newspaper, the top financier on Wall Street had reportedly earned 400 million dollars.
Around that time, I also heard about a famous professional athlete I loved who went broke making bad investments. It then occurred to me that no matter what I do for a living I will eventually depend on the performance of my investments. Therefore, it would be most efficient if managing investments was my primary expertise as that could enable me to pursue other business interests around a strategically diversified core portfolio foundation.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
In the mid 1980’s, when my older brother Matt went to college, he told me he was playing computer chess against other people at different schools. This time period turned out to be the inception of computer networking. I instantly knew this technology would unleash unlimited business opportunities long-term. Excitedly, I asked Matt to find out the company making computer networking possible.
Unfortunately, when Matt told me the company’s name was “Cisco,” I was only familiar with a food distribution company named “Sysco.” Since I was preoccupied enjoying my high school years, and had little money to invest, I didn’t research to see this company was a different Cisco! Ultimately, this was a priceless lesson to follow my intuition!
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
My father is my greatest hero and inspiration in many ways. I can never thank him enough for all of his confidence, guidance and support.
When Matt and I were little, dad was often busy with home improvement projects to save money. One day, dad called us down to the basement and showed us a full-page ad from the Wall Street Journal that he had taped to the inside door of his workshop. The ad showed a picture of a lamb, in a fancy three-piece suit, sitting behind a beautiful oak desk like an executive, in a fancy high-rise office, with a big title that read: “If you follow the herd, you could end up as a lamb chop!” This priceless lesson was just one of dad’s many tireless efforts to inspire us to think independently, creatively, and to be our own boss.
Are you working on any exciting new projects now? How do you think that will help people?
Universal basic income is a critical concept for many people, but it might be solved best through “universal basic investment.” At ETF PM, we have a philanthropic “Pledge to Give Back.” On an annual basis, we donate 5% of our gross revenue to fund Investable Benchmark Grants for hard working students. Each student receives a check for 500 dollars and a copy of our book, “Investable Benchmarks.”
We ask each student to invest their 500 dollars evenly in a combination of three securities (TQQQ, GBTC and ETHE) that target technology and cryptocurrencies. Given the performance trends in these assets, we believe this small seed investment by each student could grow to over 2 million dollars within 20 to 40 years. Clearly, teaching people to invest well could help many folks to feed themselves for a lifetime!
Ok super. Thank you for all that. Let’s now shift to the main focus of our interview. The cryptocurrency industry seems extremely dynamic right now. What are the 3 things in particular that most excite you about the industry? If you can, please share a story or example for each.
Cryptocurrency is exciting for many reasons. First, is financial system safety! After the financial system collapse in 2008, certain thought leaders realized the world needed decentralized digital currency that could not be printed or controlled by a government. Today, new technologies such as Bitcoin and Ethereum facilitate financial transactions faster, cheaper, and in many ways, better, with far fewer, if any, “middlemen.”
Second, the wealth creation from this new technology is unprecedented. Bitcoin is the largest cryptocurrency today, and it recently shattered the world speed record to a 1 trillion dollars market capitalization. Google reached 1 trillion dollars after 21 years, and Facebook got there in 17 years, but bitcoin hit this illustrious mark in 12 years. And more impressively, Ethereum is on-track to hit 1 trillion dollars in seven to 10 years of existence. This all means that cryptocurrencies are by far, the fastest growing assets in the history of our financial markets.
The third top reason cryptocurrency is exciting is the possibilities it enables. Individual investors will benefit greatly from better ways to store wealth, and to transact digitally, using dynamic new applications such as non-fungible tokens (NFTs) and smart contracts.
What are the 3 things that concern you about the industry? Can you explain? What can be done to address those concerns?
A few top concerns include asset security, regulation and volatility. There are many decisions to make regarding how individuals own cryptocurrency assets securely. At ETF PM, we use the Bitcoin (GBTC) and Etherum (ETHE) trusts, but many investors will prefer to own cryptocurrency directly through an exchange or a cold wallet.
Regulation is somewhat inevitable with strong industry growth, and it can be a positive long-term, but it can also be a concern short-term, as it tends to increase asset volatility on occasion. Regardless, the cryptocurrency market is already extremely volatile due to the many inherent risks, and the extraordinary upside opportunity. Since the short-term downside risk can exceed an 80% decline at times, investors should start with a small initial allocation, and proceed very cautiously.
What are the “myths” that you would like to dispel about cryptocurrency? Can you explain what you mean?
There are countless myths about crypto that combine to make many people feel it’s too risky for traditional investors. However, we believe these applications are a new core asset class that’s critical for everyone to own. In fact, there are signs that the cryptocurrency allocation may be the most important decision investors make long-term.
How do you think cryptocurrency has the potential to help society in the future?
Cryptocurrency has the potential to promote extraordinary global growth and prosperity by protecting individuals from government money printing and predatory financial institution fee structures. These new technology applications help to remove, or reduce, the many costly middlemen between consumers and their financial transactions. In doing so, crypto is well positioned to massively disrupt, and reconfigure, the global financial landscape in the favor of small investors.
Recently, more people have been scrutinizing the ecological impact of crypto mining. From your perspective, can you explain to our readers why the cryptocurrency industry is creating an environmental challenge?
Bitcoin is a proof-of-work cryptocurrency that uses energy intensive computer calculations to operate securely. However, the crypto industry is constantly evolving and is working to solve this issue at some point.
From your perspective what can be done to address or correct these concerns?
Well, Ethereum is the second largest cryptocurrency, and it is switching to a proof of stake system which is energy efficient. It seems the energy efficiency issue may be somewhat short lived as the market adapts to new technology and processes.
Recently, more people have been scrutinizing cryptocurrency’s impact on illegal activity. From your perspective, can you explain to our readers why cryptocurrency, more than fiat currency, is seen as an attractive choice for criminals?
Given reports that I have read, I suspect fiat currency is still more widely used by criminals. I believe cryptocurrency headlines just get more exposure from the media because the industry is hyper disruptive to the leaders of the financial system.
From your perspective what can be done to address or correct these concerns?
The extraordinary success of the cryptocurrency industry should eventually dispel these concern as investors see the historic growth and prosperity driven by these new technology applications.
Ok, fantastic. Here is the main question of our interview. What are “The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency?”
First, cryptocurrency can be super volatile so start small, and proceed very cautiously. An initial allocation of 2% to 6% of your portfolio is a good starting point for most investors. Second, be sure to own the top two cryptocurrencies by market capitalization which are currently Bitcoin and Ethereum. If a new cryptocurrency ever enters the top two in size, be sure to buy some with additional capital, or rotate existing exposure as needed.
Third, do not increase your exposure until you have a large cushion of gains on your initial investment. Passive cryptocurrency investors may need to stomach declines over 80% at times and larger positions are hard to handle in the “super-deep chop.” Fourth, most investors should avoid trading or “panic selling,” and stay focused on long-term buy and hold. We do employ active risk controls on larger positions for our clients at ETF PM, but this hedging process is most difficult at times.
Fifth, investors should remember that cryptocurrencies are very complicated and disruptive applications. There will always be smart people who either don’t understand the technology, ignore it, or reject it entirely. But on Wall Street “price is truth.” This means, the age and market capitalization of these assets tells you everything you need to know. Once you clearly see how fast these assets are growing the objections seem less meaningful.
What are the most common mistakes you have seen people make when they enter the industry? What can be done to avoid that?
Common mistakes in cryptocurrency include buying too much to start, adding to an initial position too fast, panic selling in a crash, and profit-taking too early. Investors should be prepared to see their initial balance decline over 80%, and if that would be too painful, their position size is too big.
Once the initial position is in place, at the right size, investors should avoid trading. The best gains reported in cryptocurrency this past decade was from buy and hold investors, far more than active traders. Trying to trade or hedge exposure to these assets can be very dangerous for most investors.
Do you have a particular type of cryptocurrency that you are excited about? We’d love to hear why.
Ethereum is my favorite cryptocurrency because of its size, growth rate, wide range of uses, and ability to adapt. While it’s the second largest cryptocurrency, Ethereum is growing much faster than bitcoin did at the same age.
Bitcoin hit a 1 trillion dollars market cap in year 12, shattering the world speed record, and Ethereum could get there in year seven! All of the other digital assets in the world that are growing as fast as Ethereum are much smaller in size, and far more volatile.
Ethereum also has a proven ability to adapt and upgrade to spark new markets. Related innovations in decentralized finance, non-fungible tokens, deflationary mining rewards, and proof-of-stake protocols, all highlight how Ethereum is leading the cryptocurrency industry in terms of innovation and adaptability at their size.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂
At ETF PM, we are very hopeful that our Investable Benchmark Grants to hard working students will prove that “universal basic investment” is a critical solution for many social problems today. As advanced machines increasingly replace or reduce demand for human labor, universal basic investment could help a growing number of people. Ultimately, it may even significantly reduce the number of homeless people in the U.S. and abroad.
While giving someone lunch may feed them for a day; teaching them to invest could feed them for a life-time!
We are very blessed that very prominent leaders read this column. Is there a person in the world, or in the US with whom you would like to have a private breakfast or lunch, and why? He or she might just see this if we tag them 🙂
Oprah Winfrey is my top choice for a person whom I’d like to meet so we could talk about and enact critical world improving innovation. Although, it could be a tie with Elon Musk.
ETF PM’s investable benchmark portfolios are revolutionary, especially for small individual investors, and our student grants can change a person’s life exponentially at a nominal cost. Just imagine if all thought leaders like Oprah and Musk were to sponsor Investable Benchmark Grant awards for every student that graduates from a low-income high school. We could solve universal basic income quickly!
Our book, “Investable Benchmarks, Second Edition,” explains all of this, along with the Law of Attraction, and the importance of thought management, which is a critical dynamic for everyone to achieve their dreams. Given Oprah’s love for great books, her ability to spread important new information, and her appreciation of the Law of Attraction, we have a lot to discuss. Perhaps Elon could join us too! 😊
Thank you so much for these excellent stories and insights. We wish you continued success and good health!