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Brett Arends's ROI

Oct. 31, 2020, 11:56 a.m. EDT

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By Brett Arends

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He added, “I’ve never had an inflation hedge where you’ve had a kicker where you’ve also had great intellectual capital behind it, so that makes me even more constructive on it.”

It’s not clear how much Tudor Jones had invested in bitcoin when he went on TV to talk it up. I’ve reached out to his public relations team for clarification, but they declined to comment. Tudor Jones said during the interview he had a “small single digits”—or is it, “small, single digits”?–allocation to the cryptocurrency. A “small single digits” allocation might be as little as 1%. On the other hand, a “small, single digits” allocation could be pretty much anything below 10%.

His firm, Tudor Investment Corporation, manages around $8 billion in assets, so that could potentially be anywhere up to nearly $800 million in the cryptocurrency.

Tudor Jones’ arguments about bitcoin are interesting. Some might reply that Apple /zigman2/quotes/202934861/composite AAPL +3.29% and Google /zigman2/quotes/205453964/composite GOOG +5.36% didn’t succeed simply because they had a lot of smart people behind them, but because they provided great products and services that consumers loved. Nokia /zigman2/quotes/207421390/composite NOK +1.69% , BlackBerry /zigman2/quotes/202784246/composite BB +3.56% , Yahoo and the like also had lots of smart people working for them, and it didn’t save the stockholders.

Actually, there were lots of really, really smart people working at Enron, too.

It is a perennial argument of bitcoin champions that it must be a wonderful investment because the technology is so amazing. It reminds me of the old joke about the inventor who created a really clever device for scrambling eggs inside the shell. Yes, it’s very clever, but why do I need it?

Is bitcoin a credible “inflation hedge”? Sure, if you fear that the U.S. dollar is going to lose purchasing power, many things that aren’t dollars will be “inflation hedges.” Ditto real estate /zigman2/quotes/210598039/realtime DWRTF +2.04% , timberland, gold /zigman2/quotes/201432642/composite GOLD +1.88% , art, wine, euros /zigman2/quotes/210561242/realtime/sampled EURUSD +0.3469% , yen /zigman2/quotes/210561789/realtime/sampled USDJPY +0.0734% , energy futures, and possibly luxuries like Rolex watches.

But what inflation are we talking about?

Gasoline, clothing and some other prices are falling. But in the past 12 months, used car and truck prices have risen 10%. Food’s up 4% and medical services 5%. Housing prices in the suburbs are up and apartment rents in the city are falling. Which ones do we want to hedge?

The official overall consumer-price index has risen 1.4% in the past year. The bond market is predicting it will rise about 1.6% a year over the next five.

Meanwhile, a look at the price for digital currencies shows the obvious issue. Take a look at our chart. It shows the price of bitcoin adjusted for the official consumer-price index.

Even since bitcoin went mainstream, in 2017, there has been no correlation—none—with the CPI. The “real,” inflation-adjusted value fell nearly 80% at one point, and that’s just looking at month-end prices and ignoring the even greater volatility when you count daily prices. (Actually there was no correlation before it went mainstream in 2017 either.)

Hold bitcoin in an IRA and you won’t have to pay capital-gains taxes on any profits, although you will have to pay ordinary income tax on the money you eventually withdraw from the account. But if you hold bitcoin in an IRA, whether a pretax “traditional” IRA or a posttax “Roth” IRA, and you won’t be able to claim any losses on your taxes either.

The best case for holding digital currencies in an IRA is that you won’t have to track and report every single transaction on your tax return every year. That alone is valuable. On the other hand, you don’t have to own the digital currencies at all.

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