Cramer: This is the 'best thing I’ve read on crypto' and it makes me 'very worried'

Published Tue, Feb 15 20224:20 PM ESTUpdated Tue, Feb 15 20224:22 PM EST

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

CNBC's Jim Cramer trimmed his cryptocurrency position in light of a recent note from Michael Cembalest, the chairman of market and investment strategy at J.P. Morgan Asset Management. Cramer told colleagues at the CNBC Investing Club that Cembalest's in-depth report has made him "very worried" about his personal stake in ether , the cryptocurrency native to the Ethereum blockchain. Bottom line After reading Cembalest's report, Cramer decided to reduce his ether holdings by 10%, booking further profits in the cryptocurrency he first bought early last year . While he's taken profits in ether at other times , he said this latest sale was directly related to the arguments Cembalest laid out in his research note. In his "Morning Thoughts" email to Club subscribers, Cramer called it the "best piece I have read on crypto." "It's an amazing piece. I am sure that [Cembalest] took a lot of heat for it, but I finished it and I said, 'Oh my God, maybe I have to dump my Ethereum,'" Cramer said Tuesday on CNBC's "Squawk on the Street." Cramer has previously spoken favorably about cryptocurrencies, saying they should be a tiny piece of an investors' overall portfolio to hedge against inflation, recommending putting up to 5% in either bitcoin or ether, along with 5% in gold. "As long as you recognize the very real possibility that the whole investment case for crypto rests on the greater fool theory, you've got my blessing to speculate on it," Cramer told "Mad Money" viewers in late October. Cramer still feels that way after reading Cembalest's commentary, but believes investors should not be "greedy." If their holdings get larger as the value of cryptocurrencies go higher, be willing to take profits, Cramer advised. Summarizing the report In his early February report, Cembalest examined the cryptocurrency market from a number of angles including adoption trends and venture capital investment, as well as the range of use cases for digital assets and blockchain technology. Cembalest — who has spent over three decades on Wall Street — generally takes a skeptical view to the grand promises and predictions espoused by crypto boosters. However, he writes that he's "tempted by the store of value thesis," although for now the highly volatile nature of bitcoin does not meet the criteria to be considered one. "Some crypto use cases will endure," Cembalest concedes, most likely remittances and the use of permissioned, private blockchains. The latter, he notes, is already being used by his own employer to complete intraday repo transactions. Insurers "might adopt the blockchain to improve fraud detection and recordkeeping," he writes. "But these examples do not validate crypto use cases, they validate blockchain use cases. It remains to be seen if decentralized ledgers are the cost saving gold mines they are described to be." Ultimately, Cembalest expresses reservations about how quickly crypto adoption will go play out. That leads him to conclude investors in the digital tokens themselves and companies in the nascent industry could face significant disappointment as valuations come back to earth. He likened debates over crypto to those surrounding the hydrogen economy, and he also referenced lessons from the 1941 movie, "The Maltese Falcon." "I won't be buying it even though part of me wants to, regardless of consequences, since that's what some crypto holders have been counting on from the beginning," Cembalest wrote, explaining how he's thinking about allocating his own money. "I would take another look if crypto valuations and the companies linked to them plummeted to deeply distressed values. But until then, the most widely discussed use cases and the valuations at which they're trading are still the 'stuff that dreams are made of,'" he wrote, borrowing from the last line of "The Maltese Falcon." Cramer said he believes Cembalest is basically saying with the "Maltese Falcon" reference "that everyone is chasing a worthless security," like in the movie when the search for the priceless artifact only turns up a fake. (See here for a full list of the stocks owned by Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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CNBC's Jim Cramer trimmed his cryptocurrency position in light of a recent note from Michael Cembalest, the chairman of market and investment strategy at J.P. Morgan Asset Management.

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