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Episode 17: Why cryptocurrencies like Bitcoin don’t fit in our investment philosophy

Jean-Francois Bordeleau, Senior Practice Manager, Investments, Mark Fairbairn, Assistant VP and Portfolio Manager, and Craig Maddock, VP and Senior Portfolio Manager, at MD Financial Management discuss cryptocurrencies within the framework of MD’s investment philosophy.

 

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In episode 17 of the MD Market Watch Podcast, we were fortunate to have three of MD’s investment experts on hand to discuss cryptocurrencies – Jean-Francois Bordeleau, Senior Practice Manager, Investments, Mark Fairbairn, Assistant VP and Portfolio Manager, and Craig Maddock, VP and Senior Portfolio Manager. We explored cryptocurrencies as investment vehicles – are they currencies, are they investments? We also discussed the latest news and developments – recent market activity and policy maker actions. And last but not least, how cryptocurrencies fit in MDs investment philosophy. 

At the moment, are cryptocurrencies like Bitcoin actually currencies?

Craig Maddock [1:01] It's an interesting question. I don't think it's that relevant myself, Alex, but if you looked at, say, the Financial Consumer Agency of Canada or the Bank of Canada, you know, they'll say that it's electronic money. The Bank of Canada would suggest that only bank notes or coins, minted coins, would be considered legal tender, so you know, official currency in Canada. But let's face it, you can make payments today using a wide variety of electronic means, you know, your credit card, debit card, PayPal, all those things which aren't legal tender, but they certainly work from a currency standpoint.

I’d say there’s aspects of cryptos in that perspective, that are [like] currencies, or act, or has some features like a currency. You sort of think of it, I’d say as two main things when we start to deal with cryptocurrencies, like one is, are they a method of exchange? Can you actually do something with them and move the money around, buy stuff? That sort of thing. The other one is the valuation or what it’s worth?

If I think of it as a decentralised payment system or storage system, like today, we think of banks as a place to store our money, perhaps, or a mattress, I guess, to the extent that you wanted a decentralised way to store your money, perhaps not as safe, but small amounts of money in a purse or a wallet. So that kind of works. But if you then think of it as a digital format, you can do the same thing digitally now with cryptocurrencies. So, from that perspective, I don't think it's not a currency, kind of has some of the features that you'd expect to be able to buy and sell stuff.

They're not that easy to use, I would say, compared to say standard currencies that people are used to. There's like, what, a 160-something official currencies around the world today? Do we actually need another one? To make things easier? Do we need several thousand other ones? I'm not really sure what the problem they're trying to solve. But I think they're currencies to some degree.

Maybe the more important thing is around the valuation or stability of the price. I think that's where, maybe as a currency, they fall flat, at least certain ones do. There is some new ones that have been launched more recently, like stable coins, where they're actually pegged to something and they have got some stability of the price. I think that's a very interesting concept that maybe has some growth for the future. But the ones that are floating rate, and you don't know what the value is, I think those are very difficult to call a currency.

If you just look at a very simple example, so say you bought Dogecoin, as an example, trading at US$0.325

Dogecoin, you'd need like 15 Dogecoin to buy a bag of milk. If back in January, your grocery store started selling milk priced in Dogecoin, and like at the time, you would’ve needed like 1000 Dogecoin to buy a bag of milk, they started accepting that, would you still use your Dogecoin today to buy the same bag of milk if it was 1000 Dogecoin? Probably not because it'd be like a US$300 bag of milk. So, I think this is where the problem comes in when you think of them as a currency – is with this fluctuating value that's not really what you expect of a currency. It's not very useful as a medium of exchange or a store of value because you don't know if it's going to go up or sadly go down significantly.

Jean-Francois Bordeleau [3:53] Yeah, I think Craig, you nailed it. And if I can, kind of, in my mind, simplify that is that in most part of the world, are they illegal tender? And if we see currency as legal tender, and the answer would tend to be more toward the no than yes.

But are they a tool that allows someone to exchange something, to barter, to get something in return? And if that's your definition of currency, then Bitcoin and the others, you know, would probably fit that bill. But unlike the traditional currencies, I mean, their fundamentals and their valuation are a little bit more elusive. To me that's what I'm taking away from that question as to whether Bitcoin is a currency or not, it depends what your definition of currency is to start with.

Mark Fairbairn [4:33] Yeah, I would just add to that there's, I guess, one nuance to using a cryptocurrency, which I guess, taxation wise, is more like a commodity. So if you purchase something with a cryptocurrency, it becomes a taxable transaction between what you effectively trade that cryptocurrency at, so what the purchase price versus whatever you acquired it at, which is not the case with the currency. If you buy something with Canadian dollars or U.S. dollars, it’s just the transaction, but if you buy something with Bitcoin, then you are effectively selling Bitcoin to somebody else as a means of payment. But you have to deduct what you acquired that Bitcoin at and put that on your tax return, which adds to the cost of the transaction.

Jean-Francois Bordeleau [5:13] That would be like trading like a painting for something else, and you have to value it and tax it and that kind of stuff. But yea, I hadn't thought of that Mark. That's, that's a fair point.

What are some of the merits of cryptocurrencies?

Mark Fairbairn [5:32] Sure. I think the key merit, if you look at it, it's really this sort of way to facilitate transactions in a very decentralised network. So, whatever your opinion on Bitcoin or the merits of the underlying valuation, the truth is, it's broadly accepted, there's futures on it. Hundreds of millions of dollars trade a day in it, and it happens on an entirely decentralised network that's not related to any established financial entities and their built-out network.

So, when you think through it from that standpoint, where you can facilitate cross border transactions, the transaction costs of doing so. The whole thing is, you know, meant to create this environment, the trust. The existing or the traditional financial system has a lot of clears and a lot of checks and balances within it to provide that element of safety. That slows stuff down and increases cost to doing it.

So if there is some merit to crypto, I think, or at least from a technology standpoint, or innovation, the disruption, is that ability to sort of compress those – the distance between point A and point B in a transaction. And I think that's, in some cases, were its found attractive. Now, you could argue that some of the attractiveness of that decentralised nature, or that, you know, lack of the middleman has led to perhaps more nefarious uses of it, but it is something that is positive.

Craig Maddock [6:48] I'm a little bit less positive than Mark on this whole topic. I just, I've yet to come to some broad conclusion as to what the benefit of a, I'm going call it a decentralised cryptocurrency is.

I think the concept around you know, electronic money and the ability to move it around and it having kind of a tag on it, or that sort of a thing – I think maybe there's some novelty attached to that. But I just don't think there's a problem with our current system, like I can buy and sell goods and services using electronic means now. I don't actually carry paper money anymore. I haven't used paper money – I couldn’t tell you when – I just don't do it, and nor do a lot of people.

So those payment systems move quite efficiently, like PayPal can move payments from wherever to wherever, I can use my credit card, money stored safely in my bank. Aside from what Mark mentioned around, you know, the black market and people needing to move large amounts of money nefariously, as opposed to brown bags of cash, they're actually doing it electronically. And I don't know why, as a society, we want to or need to facilitate that.

Beyond that, I just have really hard time coming up with a use case that's actually sensible or rational for why we need another currency or why we need cryptocurrencies.

 

Jean-Francois Bordeleau [7:57] Yeah, Craig on that one, I think that's an important distinction that we also need to make around digital currency, whatever that might be versus cryptocurrency. So, at that digital [currency] offered by a central bank, and we see some signs of that in China, versus crypto, which is, let's call them, those decentralised, non-central bank systems.

And again, we saw those cases of ransomware over the last couple of weeks, and it just further reinforces the view and the current reality that crypto does tend to be used for things that may not be above board. Things that you may not want to be tracked and things like that. So, for as long as you see those behaviours, that lack of legitimacy, I mean, it's going to cripple somewhat the case for crypto. As opposed to digital currency, which for me is a separate discussion.

Would you consider cryptocurrencies as investments? Do they represent a good or viable investment opportunity?

Jean-Francois Bordeleau [9:07] I mean, I'll just start with the basics. I’m definitely interested in Mark’s and Craig's view on that one. I mean, if you see investments as something that you put money in, that will either grow, shrink or do nothing. Well by that very simple definition, sure, crypto can be an investment.

 

But I mean, I think that the question that usually people are interested in is whether they're a good investment. And to me that the one factor that puts me a bit in the no camp is the lack of an ability to do proper valuations, really get a true meaningful value based on some sort of fundamentals. I mean, the closest thing I can think of, but even then, you could say there's some fundamentals, would be gold, and things like that. But that would be my overly simplistic view of whether they are, quote-unquote, a good investment opportunity or not.

Craig Maddock [9:57] Oh and I think you hit the nail on the head, JF, with the over simplistic view, because that's all, in my opinion, that's all you need. If you ask what are they good for? So what purpose are they solving? What return do they generate? What free cash flow do they spin off? What interest do they earn? The answer to all of those is zero, which therefore should tell you what they're worth.

I loved the gold comment, because a lot of people have said, "oh, well, it's like, it's the digital gold.” But in reality, gold in itself, aside from its industrial uses, as a society, we've sort of thrown this value on it due to its scarcity. And it of course used to support the financial system years ago in reserves, but it's no longer the case. So, it still has this – there’s this weird relationship with gold and the economy that people hold on to, but even that one's feeble. Like there's no real rational reason for it to do so. But at least gold we can talk about its scarcity value, you can hardly call cryptocurrencies scarce. People try to make the claim that Bitcoin is scarce because when the founder created it, they only made so many Bitcoins. But since then, how many cryptos have actually been launched? Like thousands of them, there's no barriers to entry to create a new cryptocurrency, so they're not scarce at all.

So, on that basis, there's not even scarcity value, like I just, there's zero way to put a value on this thing, aside from the greater fool theory. And if that's what you believe, from an investment standpoint, is your basis for making a decision, is that I'm going to buy this because I think some other idiot behind me is going to pay more for it. Which let's face it, that's what all the meme stocks, that's what, to some degree, has happened to a lot of things, in particular cryptos. That's certainly not a sound investment decision. That's pure speculation and hopes that, like I said, there's a fool greater than yourself.

Mark Fairbairn [11:35] From a portfolio utility standpoint, I mean, the behaviour of it right now is clearly a speculative behaviour. There's some in the market, participants who probably are believers in its merits, or the technology, particularly the people who would be gravitated to gold, for example, or physical assets. But if you think through the typical argument there, is sort of your currency devaluation or inflation hedge, but buying productive assets provides a better inflation – or security than something that's just a digital store of value.

So, the concern there being that, and it's very volatile, and not entirely uncorrelated. So, to add just something with limited, or a difficult, intrinsic value to come up with, if any, that adds a lot of volatility to a portfolio, it doesn't seem as much of a hedge. I mean, it seems to trade as much on various celebrities’ tweets as much as any market fundamentals. So, from that standpoint, it just becomes a bit of a challenge, and focusing on, you know, building out a portfolio full of productive assets that generate cash flow seems like a superior approach.

We’ve seen some extreme volatility in crypto values lately. What's causing all this volatility?

Jean-Francois Bordeleau [13:18] Well, it's a great way Alex, I think that question, to summarise some of the key points we've talked about so far. Let's start from the position that there's very little to no fundamental analysis that you can do on crypto. Then people, investors will be looking for signs that this is a legitimate investment. And those signs will come from news. So, if you've got, let's say, the head of an electric car manufacturer, who says that they will accept it as a payment, it gives it a sense of legitimacy. And then people might be interested and say “well, okay, there's a future for this, let's throw money into this.” Then you see a sign that some Swiss bank or some leading U.S. Asset Manager may include that in the portfolio of their clients, okay, that gives it even more legitimacy and that brings the price up. Then someone else or maybe the same head of an electric car making company comes back and say “ah, you know what, I'm not as keen on it as I was any more,” then maybe takes a bit of a nosedive, because it doesn't appear to be as legitimate or it doesn't appear that there's as much demand for it.

So that's, I would say, some of the things that have driven that, but then you also have a bit of a geopolitical piece there, which has been a bit more subtle. And maybe that's room for a question later on, but it's to do with China, and their desire to create digital currency and I'm just going to go to something that, you know, was talked about last summer but we haven't heard much since then, is more or less I'll call it the demise of Jack Ma and Alibaba and Ant Financial and things like that. Which had very strong ambition for, I'll call it, an alternate form of digital currency. And we haven't heard much about Jack Ma in the last couple of months. This is not crypto, per se. But I mean, digital currency is something that, again, is somewhat parallel to that.

So, you've got some of these things happening right now where you've got, like I said, the tweets, the news and that kind of stuff. You've got a few countries that may not see crypto from a keen eye and may want some measure maybe to control that. You put those two together and so you have what comes up, kind of must come down. And again, in my very simplistic view, I think that is what we've seen an experience over the last year or so.

Craig Maddock [15:36] You throw on top of that, there was discussions around the electric power use and how, you know, all of a sudden Elon was concerned because of the amount of electricity used to validate the whole blockchain process supporting Bitcoin. It's like, I just laughed, I said, What? Like, why would the power usage have anything to do with the fluctuation or value of, or acceptance of a currency, or a medium of trade or exchange? Like the fact that it has been built onto a platform that is power user and a significant power user to support this thing – why would we believe that's the technology of our future? Like, I just – even that, there was a debate about it, like around the, “well no, but eventually they'll use solar to power it and it'll be better and it'll be cheaper and more efficient and greener and stuff like that.”

Why are we worried about green when we're talking about currency? Like, the whole thing is just, it's a joke, in my opinion, like it's a giant bubble waiting to burst. It's going to be volatile because people are asking and thinking about this in a totally ridiculous way. And when questions and rationalisations around energy use are used to support its value or not, or the acceptance of it from a car company or not, it just tells you that this thing is a massive speculative bubble.

Jean-Francois Bordeleau [16:41] And Craig, on that whole green issue, the interesting thing is that, what Elon Musk tweeted about it, what a month, a month and a half ago? Yet I believe that the first major articles on that date from late last year. So, it's not that was a new thing. That was actually out in the public knowledge. Yet, I think at the time, investors, for whatever reason, chose to ignore that until such time, I think, one of the lead influencers decided to take action about it.

Craig Maddock [17:11] Even if you think about it in its simplistic form JF, if you went to the store to go buy, I don't know, a bag of chips. And you know it was going to use a ton of energy to validate that transaction between yourself and the store. Like, the whole thing's preposterous.

Jean-Francois Bordeleau [17:24] Agreed.

El Salvador has become the first country to accept Bitcoin as legal tender. What does it mean for the global financial ecosystem?

Craig Maddock [17:39] Yeah, so they're going to start accepting it September 7th as legal tender. I don't think it's going to have any impact on the financial system at all. Like, let's face it, El Salvador is a fairly small country. Currently, they actually use the U.S. dollar as their currency. So, I'm not really sure what happens when all of a sudden they start like – are they going to switch from the U.S. dollar to Bitcoin and everybody's got to have Bitcoin? That sounds like an absolute complete disaster to me. But I think, given that, it probably tells us a lot more about the state of El Salvador, sadly, than it does about the future of Bitcoin.

As far as these things like doing something for us, or being part of our portfolio, as we're looking at this, it doesn't make it any more legitimate to me. All the points I've made previously around what it is, or quite frankly, what it is not, don't change just because somebody or some country decides to accept it as a legal tender as part of their currency structure.

Mark Fairbairn [18:27] Yea, I think on El Salvador, part of the rationale for the country to undertake or to accept Bitcoin as legal tender, is sort of to the point earlier around the transaction cost. To make an international remittance overseas can be expensive. And if you're a lower income person, and that cost of that transaction becomes material.

So, I think the intention was to make it easier and cheaper for overseas El Salvadorians to send money home. But the challenge is, is how do you have a dual currency system? Since they've made this decision, the IMF has warned them about it and their bonds have sold off. So, it seems to be causing second order risks to the country, as opposed to getting the benefits from that standpoint.

Jean-Francois Bordeleau [19:05] I think, so you've got a very secondary geopolitical issue there as I was hinting earlier with maybe some countries wanting to be less reliant on [the] U.S. dollar. But whether crypto is the answer to that, I think that's a whole other podcast.

What is the legal and regulatory environment like at the moment? How could this impact things for us?

Mark Fairbairn [19:39] From a country's perspective or a government's perspective, the challenge with cryptocurrencies such as Bitcoin, or others, is the lack of control. You're effectively giving up your monetary policy to an algorithm or a set of rules on how something's created. So, you no longer have the ability to execute your own independent monetary policy. We've talked a lot about the nefarious nature of some of these transactions – so that lack of oversight, AML, money laundering, terrorist financing, all of that – without the oversight and control that comes through a traditional currency, is a challenge or a concern to governments.

So that is, you know, the main reason why most governments I don't think will necessarily full-on embrace a decentralised network, like Bitcoin, at least from a legal tender standpoint. But there are merits to sort of the notion of a digital currency, especially, as Craig mentioned earlier, like how many of us actually use a physical bill to purchase things?  It's, you use your credit card, your debit card, and in China, particularly, currencies have generally been displaced by WeChat Pay and Alipay.

The Chinese central bank’s digital currency is probably as much a reaction to that – they’re trying to capture some market share back from those two technology titans, and just say, “okay, well, this is a pretty good way of transacting – you gain a lot of information by monitoring these transactions – let's create our own payment system that would allow us to monitor or control these transactions, but keep the utility.”

So that seems to be what's happening with some of these, specifically, China central bank’s digital currency. And most of the other central banks are similarly looking at something similar. But in this environment, you're still going to have the government sort of, you know, maintaining that control over the monetary policy, it's really just about digitalizing the way you interact with their money.

Craig Maddock [21:19] And I think you can add on top of that, making Elon Musk, the global central banker, I don't think it's going to happen. But then there's the, I guess, subset of that, which hasn't really come up in a lot of discussions yet. But it's really around the banking systems, right?

So you think of Canada, we've got the most stable banking system, arguably in the world, right? And for the most part, we have honest government, or at least, you know, non-corrupt government, at least not significantly so and lots of regulatory safeguards, such as Canada Deposit Insurance Corporation or Canadian Investor Protection Fund, and that's on a well-capitalised, very strong financial services. It's also highly regulated and therefore safe.

And on top of that, it's that safety of that banking system that enables people to borrow money. Like we all know, the cost of houses has gone up significantly in Canada, and the only way people can afford them is to borrow. How do you borrow money from a decentralised financial services system? That's not actually a bank – it doesn't lend money – it’s just printing it, I don't even know what it's doing. So, I think that's the other biggest challenge is what do you do with this thing? Like if everybody puts their money in Bitcoin, well, you can't borrow in Bitcoin, or at least you're going to have to come back to some financial services system, a.k.a. the banking system, which is the regulated structure in Canada to borrow your money. Which means you're putting your Bitcoin back into the bank anyway. So, your purpose to get into a decentralised unregulated environment, you're going to go back there anyway, unless you somehow have more money than you need and don't need to ever borrow money.

So, I think the whole thing is just, again, I scratch my head around this. This is one of these things that I'm surprised it's created as much attention. Surprised, it's got as much value or people put as much money into this thing. When everything I look at it, it's just irresponsible, irrational, it just makes no, no sense.

Jean-Francois Bordeleau [22:59] Yeah, I mean, a lot of focus on China. And Craig, good points. I'm with you on that. What's interesting, though, is that you've got a few other smaller countries that, again, not so much crypto, but are looking to embrace digital currency. And I was reading a while back, I don't know what their progress has been as of late, but you had Sweden where, I mean, the vast majority of the transactions were done through a network that was within Sweden and stuff. And I know, they were looking quite aggressively to implement some sort of digital currency system. So, I mean, you can see Sweden, but I think some of the other Scandinavian countries were looking at that.

So, as much as the spotlight is on China, because of their size and their ability to influence, there's a few other, maybe smaller countries that are known for innovation, that are also looking to move forward with digital, not just crypto, but digital. So I think that field is going to be a very interesting one to follow up with. Then to Craig's point, is basically how do you integrate all of that within the regular financial system and a banking system and all of those things? And I know, this is why, I mean, those central banks are, I'm not going say taking their time, but they really want to study them – how to properly put these into place.

In high-profile fashion, Tesla announced that they started to hold crypto as part of their reserves. Is this a trend and how does this impact things for us?

Craig Maddock [24:24] Makes me less excited to want to own Tesla stock. Not that I was excited with it's valuations anyway, but I think it's just noise. Again, another piece of the puzzle, which I'm not sure what Elon's long-term goal is in talking about cryptos or trying to support it. It makes no sense to me, for all the reasons we've talked about already. It makes no sense why he would want to own that volatile asset on his reserves in his company. Similar to my comment on El Salvador, probably makes me question Elon Musk more than it does Bitcoin.

Jean-Francois Bordeleau [24:52] Yeah, Craig, I'm with you on that one. And again, I'm not Elon, so I don't know the "why's" and the "what's." But I mean, my personal theory is that it's potentially just a little bit of a distraction as other car manufacturers are scaling up, and potentially overtaking Tesla as the number one electric car manufacture and, you know, also improving on some of the technologies that have been brought forward. So, I would speculate that this may have something to do with that – create a little bit of a distraction to say “hey, now we're doing something cool. Invest in Tesla.” But again, do I know that for a fact? I do not know that for a fact.

Mark Fairbairn [25:29] I would echo a similar comment to JF. My best guess, obviously not Elon or what he's really thinking, but the best guess is it’s probably a marketing play. It's on brand, if you want to be a technological maverick and be out there talking about different cryptocurrencies and technologies. It's a big number, but it's a relatively small number in context of their valuation and they added it and then they sold some of it for profits. So, I guess, their timings seemed to work out to some degree, but I don't see it being a broader trend.

What are your thoughts regarding the social implications related to crypto – from the potential use in nefarious activity, to the power-hungry mining operations?

Jean-Francois Bordeleau [26:17] We've talked quite a bit to these issues, but again, to maybe paraphrase what Craig said earlier, you know, something that is as power hungry, is that so much about the future? Probably not. Sure, if they can find a way to solve that and make that less of an issue that makes it a bit less of an impediment. But regardless of how the energy is being produced, if you need that much energy to sustain your payment system, that would be a bit of a question mark, for sure.

And the other aspect is how it has been used as of late. As I said, people are looking for a sense of legitimacy. There's hope that it becomes legal tender, because then maybe you can track it, maybe you can do certain things. But the two or three recent case of ransom in the U.S., and then the FBI hacking the people that did the ransom to get that Bitcoin back, just shows how problematic that can be at this point in time.

So, it's, I don't know if it's a work in progress, or something that can and will be improved upon, but at this point in time, I would say there's more question marks, then, ”oh yeah, this is all good and, you know, it’s all going to be resolved.” I'm not too sure.

The million-dollar question, are we considering cryptocurrencies for MD portfolios right now?

Craig Maddock [27:35] No. Not on my watch, Alex. I don't even think it's the million-dollar question – it’s the miniscule, fraction of dollar question. I think it’s been clear – I’m not going to speculate with our clients’ hard-earned money. I think when we've got the very safe financial system we currently have, we've got lots of great investments of productive companies we can buy on behalf of our clients to generate good returns through time where the fundamentals are sound and solid, where the prices maybe are a little expensive today, relative to where they've been through time, but certainly are not excessive. Lots of good things to buy, we don't need to do it. I'm not fearing missing out on this one at all.

Jean-Francois Bordeleau [28:09] Yeah, Craig I'm with you on this one. And even if we take it out of the portfolios, and we look at it from an individual investor basis, crypto or crypto-related investments are not something that our advisors would recommend at this point in time. We do consider the investment to be highly speculative. And if, as an investor, you choose to include that in the portfolio, as the advisor reviews your portfolio, make sure to point out their risk and the fact this is a highly volatile, highly speculative investment.

We’ve said in the past that blockchain technology is the real opportunity here. Do we still feel the same way?

Mark Fairbairn [28:52] Blockchain seems to be real. That's definitely a trend that the market is on and definitely a promising technology. In fact, the European Investment Bank actually issued a bond on the Ethereum network earlier this year. So, they’re dipping their toes into figuring out how some of this blockchain technology from a, in that case, a way to measure and track, sort of, fixed income holdings which tend to be over the counter.

So, from that standpoint, as we've said in the past, any area of transactions that require trust, which is most of them, there's definitely a benefit for this sort of secure technology to assure that the transaction is legitimate or the product is legitimate. So, you know, healthcare, the ability to ensure that medicines are not counterfeit.

In terms of opportunities, most companies or a lot of companies are really looking at this, but they're not perhaps the pure play companies that you might think. It's not some, you know, blockchain specific start up that we'd be looking at. But just large companies that we deal with or invest in do have investments within blockchain – MasterCard, Amazon, most banks, so it's in the portfolios, but not as a direct play.

What don’t cryptocurrencies like Bitcoin fit into MD's investment philosophy?

Craig Maddock [30:06] Yeah, and I think we've touched a lot on it in this call Alex. It's really around fundamentals, right, we want to make sure that whatever we're doing with our client’s investment has a rational basis for making return in the future. You know, whether we're investing in an underlying company that generates a profit, and therefore, as owners of that company, that profit is going to flow back to our clients. Or whether we're buying into a bond, we want to have a reasonable certainty that we're going to get repaid for the risk we're taking by lending our money to somebody else.

So, those are your basic investments, everything else beyond that is speculation, if you're trying to figure out whether something's going to go up, because somebody else might think it is, we're not good at that – no one's good at that. It's a very challenging thing. And I brought up the concept earlier around the, you know, the greater fool theory, that's really what comes to mind when I start thinking about those speculative type of investments. So, for me, it's really about sound principles of investing, finding good profitable companies that we can make a good return on for our clients. Make sure they get to where they want to be, not taking undue risks with our clients’ money. That's what they, I believe, expect from us.

What we would need to see before we could start considering cryptocurrencies more seriously, as part of MD’s process?

Jean-Francois Bordeleau [31:13] For me, Alex, I would say, maybe I'll answer your question a bit differently. I don't know if it's considered more seriously, but I will say that right now, I mean for as long as there's no real valuations that, you know – it’s used primarily the way it is being used right now. It's quite problematic to consider it seriously.

Now, with that said, there is a bit of a social movement happening right now, caused a little bit by the pandemic, desire for inclusion, for creating a playing level field around kind of countries and things like that, at the social, not at the government level, not at the central bank level, but from the society perspective. And you could have a case where societies around the world may be pushed out and say, “you know what? Let's change the way that we do things.” And then you know, it's not a matter of taking it seriously, it has become the thing. Now, I do not believe that this is the most plausible scenario and things like that. But this is something I'm keeping a close eye on because there's a lot of moving pieces right now on the geopolitical and the social, and things like that, which has very little to do with investing. But that could change how we perceive crypto.

Even that comment I feel is almost speculative at my end. Long story short, Alex, I'll go back to more like fundamentals of valuation, what Craig and Mark shared earlier. If we were to get that, then you know what, maybe. But based on what we've talked about today, I think this is a long shot.

Craig Maddock [32:38] It's hard to conceive Alex at this stage, what I would see that would make us rethink that. Not to say we're not open to it – we’ll continue to monitor, continue to watch the evolution of this. But yea, we need to see something substantial that actually either legitimises it as an investment – it has a real return attached to it and a way to measure, monitor and value it. If we can do that and the valuation and return looks good, not to say we wouldn't consider it.

If any of these become legitimate currencies, we do trade currencies as part of our strategy, in which case, similarly, if we thought we could, you know, go long or short this currency relative to some other currency or basket of currencies, and again, generate a reasonable return for our clients based on rational investment thesis, would definitely consider it.

So, it's on our radar. At this stage, it just, for all the reasons we spoke of today, seems like a very speculative thing. I won't even call it an asset at this point, that is not of interest yet.

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