Two Quick Updates

There’s a couple top-of-mind items as I sit down to write this morning so I’m going to break this post into two parts. The first is an update on Social Security and the second has to do with bitcoin. Let’s jump right in, shall we?

It’s always nice to get a pay raise. Often you have to ask (or beg) for one but sometimes it just happens. Fortunately for Social Security beneficiaries the latter is the case starting in 2022.

We’ve known about the expected bump coming for Social Security beneficiaries given how much inflation there’s been lately, we just didn’t know how big the bump would be. Last week the benevolent folks at the Social Security Administration announced a 5.9% increase in benefit checks beginning this January. That increase is huge and hasn’t been seen since 1982 when payments rose by 7.4% (and the two prior years had double digit increases – lots of inflation back then, of course)! The closest since then was 5.8% for payments in 2009. While one could argue that an almost 6% raise still isn’t enough these days, it’s much better than the 1’s and 2’s, even 0’s, we’ve seen during the last decade.

How did the SSA come up with 5.9%? We’ve discussed this previously, but as a reminder the Bureau of Labor Statistics calculates a variety of inflation metrics and the SSA looks at one called CPI-W, as mandated by Congress. They do this every third quarter each year and compare to the same period the year prior. If there’s inflation they round the number to the nearest tenth and that sets the benefit increase for the next year beginning in January (but the first payment is actually made at the end of December).

The bottom line is that this should be welcome news to anyone living on a fixed income. The typical monthly bump should be around $92 based on the average benefit payment of about $1,559 per month. That’s taxable for some folks, of course, but even after adjusting for taxes the increase might cover a utility bill, help pay for Medicare, or otherwise be more meaningful than last year’s $20 average.

Bumps like this are a double-edged sword, of course, and we’ll have to see how 2022 plays out, how inflation behaves, and what the next raise from the SSA might look like.

Here’s a link to some general information about this from the SSA’s website.

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Regarding bitcoin and digital assets more broadly, the emerging asset class keeps getting more mainstream. The first bitcoin exchange traded fund, or ETF, is expected to start trading as you read this. It’s called the Bitcoin Strategy ETF and it’s ticker symbol is BITO.

This offering is from ProShares, a small but well-known ETF provider with about $62 billion in assets under management. To give this some perspective, the largest firm, Blackrock and it’s iShares brand, manages over $2 trillion. Several other firms are also coming out with their own version of bitcoin ETFs too, so the space could go from vacant to crowed pretty quick.

Would I suggest you buy this ETF, and do I intend to start using it myself? Put simply, my answer is no. My reasons have to do with what I’ve written before about investing in digital assets, of which bitcoin is certainly the most prominent: If you’re going to do this at all you should skip the fund and own the coins (or fractions of the coins) directly.

My other reason has to do with what’s in this new ETF, and likely to be in the other funds soon to follow. The fund doesn’t own bitcoin or other digital assets directly, it owns futures contracts. In other words, the fund managers trade access to buy and sell bitcoin at specific prices in the future while attempting to mimic the day-to-day movement of bitcoin’s actual price. If they’re highly skilled and if the stars align, this should work well most of the time. The fund can also invest in other less liquid funds that do hold bitcoin. These extra layers add complexity and risk. So again, keep it simple and just buy the asset directly if you choose to do so at all. Companies like Coinbase or Swan Bitcoin (two that I use personally) make this relatively simple for roughly the same cost as you’d be paying to ETFs like ProShares.

News about this first bitcoin ETF has sort of crept up on the markets and is part of what’s been driving up bitcoin’s price lately. It’s going to be interesting to watch how investors react and if they start piling money into this fund and the others likely to follow. If so, the optimist in me would see that as digital assets continuing into the mainstream. The pessimist, however, could also see it as more evidence of rampant speculation plaguing corners of the market. Time will tell either way.

Here’s an article from The Wall Street Journal on this topic. Let me know if you hit the paper’s paywall and I can send the article to you.

And here’s a link to the ProShares page if you’re interested in looking at this thing more closely.

Have questions? Ask me. I can help.

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