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Bitcoin not an effective hedge: advisor

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As bitcoin touches $1 trillion in market capitalization, Mercadien Asset Management president Ken Kamen tells Reuters' Fred Katayama why he doesn't see the popular cryptocurrency as an effective hedge against equities or inflation.

Video Transcript

FRED KATAYAMA: Bitcoin's market cap hits the $1 trillion mark as stocks on Wall Street tick higher on Friday. Let's get views on both from Ken Kamen of Mercadien Asset Management in Yardley, PA. Welcome. Good afternoon. Welcome back, Ken.

KEN KAMEN: Thank you.

FRED KATAYAMA: So Bitcoin has surged more than 60% this year alone, 5% today. Is-- you know, is it worth buying that cryptocurrency at these levels?

KEN KAMEN: The thing with Bitcoin is it's glib, but it's worth what people are willing to spend on it. And I guess the disclaimer right off the bat is I don't own any, so people that hear anyone's opinion on Bitcoin right off the bat want to know, well, he owns, he doesn't own it. The reality of it is that it's catching a wave of liquidity now that's, you know, very anticipatory on things like will it be more of a currency?

We've had announcements out of Tesla and major organizations saying they're going to now adopt this type of thing or at least dabble into it. So it's lent a lot of, you know, quote, unquote, "legitimacy" to it. But the reality of it, what that means in value, I have no idea. And candidly, no one has an idea. It's all extrapolating a theory about what the future might look like.

But what we do know is it's extremely volatile, and it's just as easy-- it was up in 5% and 10% and 20%. It could literally be down that much in a day or two, also.

FRED KATAYAMA: Well, given its volatility, does Bitcoin serve as an effective hedge-- that's the way some people see it-- against equities or inflation?

KEN KAMEN: Well, you know what? I-- it's such a hard question to answer. I mean, if it continues to go up, yes. It sounds stupid to say, but at these levels, after having run up so much, how could anything be an effective hedge that has seen hyperbolic growth over such a short amount of time? So I would be very, very cautious to use it as a hedge.

FRED KATAYAMA: All right.

KEN KAMEN: Long-term, the ramifications could be different as it's well-- if and when-- if it gets further adopted, though.

FRED KATAYAMA: So, what, if you're going to hedge, use gold instead?

KEN KAMEN: Well-- or, you know, cash or other things, but I'm not so sure, you know, buying into an asset class that's on a tear is the best way to hedge risk.

FRED KATAYAMA: What's your read on the equity market right now? We're seeing this continued rotation away from big tech names over into cyclicals. Do you see that-- do you see the further sell-off in big tech?

KEN KAMEN: Well, that's a theme that I've been talking about quite a while with you, you know, that we're going to start seeing that fabled turn back to value. I'm not saying completely, but, I mean, I think as we start getting some concerns that inflation is going to start coming back, I mean, the market's stalling a little bit on inflation fears and interest-rate fears or concerns-- maybe fears is too strong a word-- that I do think the clients of ours, as we're recommending, should be keeping themselves more towards that value cyclical bend.

And it's not that we've-- we are abandoning growth or suggesting people shouldn't, but I think it's time to pare that out. I mean, the market's just doing so well, and a lot of these growth stocks are priced for more than perfection. They're priced for perfection three and five and eight years out from now. And that's always something to be of concern.

FRED KATAYAMA: So Ken, in other words, take some profit on your tech holdings now, when you say [INAUDIBLE].

KEN KAMEN: Yeah. Listen, I've been saying that consistently with you. I mean, you kind of want to pare them back as they continue to grow. But remember, I talked to an audience of people that are saving for their retirement in their future, not people that are, you know, swing traders or day traders.

So for someone looking for the future, book some profits now, and try to get them into the spots that haven't moved. Because, you know, I won't say everything's a reversion to the mean, but whatever's done really, really well, take a look at what's quality that's yet to catch up. Because with interest rates so low, money is going to find its way to the things that haven't moved yet that are still quality.

FRED KATAYAMA: OK. Thank you, Ken.

KEN KAMEN: Thank you.

FRED KATAYAMA: Our thanks to Ken Kamen of Mercadien Asset Management. I'm Fred Katayama in New York. This is Reuters. Have a wonderful weekend, and stay warm.