FOR PROFIT?

Approximately 40 tons of marijuana were sold

in Arizona in 2017 at around $4,500 per pound.

AZCENTRAL.COM ❚ SUNDAY, JANUARY 28, 2018 ❚ 3E

AZ Economy

Arizona’s surging medical marijuana industry now includes

a 40-acre greenhouse, stock traded on the Canadian market, an

800,000-square-foot factory turned farm, and home delivery

for customers. h The industry also employs a small army of at-

torneys and pays high-end Scottsdale public relations firms to

polish its image. hThe size and scope of these operations belies

the “non-profit” description of the industry voters were given

when they approved medical marijuana in 2010, and reveals an

open secret within the industry: Non-profit doesn’t mean no-

body makes serious money. h Profitability in the pot industry

attracted unwanted attention from federal prosecutors as re-

cently as 2012 in California, but even with a renewed focus on

marijuana from U.S. Attorney General Jeff Sessions, Arizona

operators see little risk of prosecution from their profits.

Industry appears unfazed by risk of prosecution

TrueHarvesthead growerRonin Kloslooks atmarijuana in a growroom atthe TrueHarvestgrowingfacilityin Phoenix.DAVID

WALLACE/

THE REPUBLIC

Ryan Randazzo Arizona Republic | USA TODAY NETWORK

See MARIJUANA, Page 4E

GETTY IMAGES

Bitcoin and other cryptocurrencies aremaking regular headlines these dayswith their big price moves, mostly to theupside. But does that mean you shouldjump on the bandwagon? Probably not.

Most Americans probably don’t un-derstand what digital assets are all aboutand might be tempted to buy in just be-

cause they hear friends and neighborsbragging about it.

Those are among the fundamentalrules of investing that could be broken bypeople tempted to enter without first do-ing significant research.

The issue isn’t just about Bitcoin orother digital financial assets, which havetaken speculators on a wild ride. It’s alsoabout regret — how much you would be-moan lost opportunities or kick yourselffor sustaining possibly numbing losses.

The potential for regret also factorsinto other financial decisions, but it’s

front and center with these digital assets,given their growing popularity yet inher-ent unpredictability.

Bitcoin and many of the other crypto-currencies — there are more than 1,000 —appear likely to stick around permanent-ly, as does the underlying “blockchain”technology. But how things ultimatelyunfold is anyone’s guess.

These currencies are assets that existin digital form. New Bitcoins are created,or “mined,” by computers that solve com-plex mathematical problems. They’restored in “digital wallets” — a type of vir-

tual bank account but without anythingresembling deposit insurance — fromwhich they can be tapped to buy things.

Transactions take place and are re-corded in computers around the world ina public ledger, the blockchain. You canbuy coins on cryptocurrency “ex-changes.”

Bitcoins and their cousins can be usedto make purchases anonymously, whichpartly explains why they have beenlinked to money laundering and other il-

Cryptocurrency rally generates fear of missing outRuss WilesColumnist

Arizona Republic

USA TODAY NETWORK

See WILES, Page 8E

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legal activity.Cross-border payments are “easy and cheap be-

cause Bitcoins are not tied to any government or sub-ject to regulation,” noted Jeremy Kisner, a senior advis-er at Phoenix-based Surevest Wealth Management, in acommentary.

“Bitcoin’s most important characteristic ... is that nosingle institution controls the Bitcoin network.”

Confused yet? If so, that could be one reason to steerclear.

One of the most fundamental rules of investing isthat you should understand what you own. Surveyshave shown that the public routinely struggles on quiz-zes that ask simple questions like: What happens tobond prices when interest rates rise? Cryptocurrenciestake the knowledge requirement to a much higher level.

Here are some other reasons to remain wary:

The economics are dubious

One reason digital currencies have surged is thatthey’re difficult to create, ensuring modestly slow in-creases in supply that have “added to the fear of miss-ing out,” Kisner said.

Bitcoin, the biggest and best-known cryptocurrency,recently was worth around $160 billion, wrote NathanErickson, chief investment officer at MRA Associates inPhoenix, in a commentary. That made it more valuablethan most companies in the stock market.

Yet corporations generate millions if not billions ofdollars’ worth of revenue and profits by supplying im-portant products and services. Digital currencies, forthe most part, don’t.

Besides, profits, cash flow, revenue and other mea-sures can be analyzed to determine a fair value for acompany.

“Bitcoin doesn’t have profits or cash flows, making itextremely difficult to determine a value,” Erickson not-ed.

Pricing has gone parabolic

This is another way of saying prices have risen sosharply that they could be overheated and unsustain-able.

When you look at a chart of recent Bitcoin prices, thesteeply rising upward curve is shaped like the under-side edge of a football. With other assets in the past,such rapid price appreciation has often preceded col-ossal crashes.

With no cash flow or tangible assets to value crypto-currencies, it could come down to hoping someone elseis willing to pay more than you did, Erickson said.

“Those who are buying today are simply hoping tosell it to someone else at a higher price,” he wrote in hiscommentary. “Without a mechanism for valuation orstabilization, it represents an extremely risky and spec-ulative purchase.”

Regulators probably can’t help

The Securities and Exchange Commission and othermarket watchdogs are showing more interest in digital

currencies from an anti-fraud perspective, but thatdoesn’t mean they can make investors whole in case offoul play.

In fact, a recent SEC statement on this matter wasfairly clear: You’re on your own.

Even having your computer stolen or losing yourpassword could effectively wipe out your investment.

“There is a risk if the cloud computers get hacked oryour computer (holding) your digital wallet crashes orgets lost/stolen,” Kisner wrote. “The Bitcoins would stillexist, but you would never be able to access them with-out the digital encryption key.”

Investing for the wrong reason

The big lure for investors is the ability to make mon-ey. But some people might be motivated as much byemotional insecurity — a fear of missing out.

You hear other people brag about how much moneythey’re making, so you start worrying about being leftbehind or, worse, being called stupid for not jumping onthe bandwagon.

Such feelings aren’t good justifications for riskingyour money.

“Historically, whenever human beings allow emo-tion to be part of a financial decision, the outcomes arerarely favorable,” Erickson observed. “(Fear of missingout) can cause investors to buy at the top of marketsafter watching an investment increase in value ... andhearing about the (supposedly) great performance ex-perienced by friends and neighbors.”

One way to frame the issue is by examining your po-tential for regret. Ask yourself whether, years from now,you would mainly regret missing out on a big gain ifBitcoin continues to skyrocket? Or would it be morepainful if you instead suffered a huge loss?

A desire to minimize regret weighs on all sorts of fi-nancial decisions, but the potential with cryptocurren-cies is intense. Hence the importance of analyzing whatyour motivations are, not just with financial choices butwith other life challenges including career paths and re-lationships.

“Although you never know in advance how a deci-sion will turn out, people rarely have regrets when theyspend their time and resources in ways consistent withtheir values and priorities,” Kisner wrote.

If you still decide to take the Bitcoin plunge, mini-mize your potential for regret — and actual financialdamage — by limiting any financial stake to an amountyou can afford to lose. If the frenzy persists, a modeststake still could grow into a big profit.

But if it fizzles, you would still have the bulk of yourinvestment portfolio — and sense of self-worth — in-tact.

Reach the reporter at 602-444-8616 orruss.wiles@arizonarepublic.com.

WilesContinued from Page 3E

“Bitcoin doesn’t haveprofits or cash flows, makingit extremely difficult to determine a value.” Nathan EricksonChief investment officer, MRA Associates