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What About Bitcoin?

December 19, 2017, 2:31 pm

With bitcoin all over the news, it’s no surprise that I’ve received a couple of questions asking for my take, so I wanted to share it with you today.

Bulls on cryptocurrencies talk about the limited supply of the coins and the innovating blockchain technology used to mine them. They are also seen as a convenient store of value. However, I believe these positives are actually outweighed by the negatives. The value of bitcoin is highly dependent on what a relatively few number of traders say it is. You cannot easily exchange it for actual goods and services, like at your local supermarket or on Amazon (AMZN). The fact that it is so volatile, moving from $13,000 to $19,000 and back down in a matter of days, is unheard of in real currencies and shows that it is a trading instrument, not a currency. It’s also important to keep in mind that bitcoin is not backed by any government, and in fact, governments could easily ban its use or trading should they decide to do so.

I believe that former Federal Reserve Chair Alan Greenspan said it best: “Bitcoin is really a fascinating example of how human beings create value, and it is not always rational … it is not a rational currency in that case.”

If you’re still interested in trading bitcoin or other cryptocurrencies, your options are essentially limited to Coinbase. You can open an account and start trading, just as you would with a typical brokerage account. Of course, fees vary, but in the United States it will cost you a minimum of 1.49% of your funds to convert your dollars into bitcoins to trade. However, please know that Coinbase did crash once due to high usage that was straining its IT systems and management warned on Twitter (TWTR) that this could happen again, so it’s important to be careful.

For me, I think the true game changer and where the real opportunity lies is in the technology behind bitcoin: blockchain. Blockchain boils down to a way to authenticate transactions within a cloud of networked computers. There’s so much processing power built into each link in the data chain that it’s practically impossible to break the code. Only the computers with legitimate access can authorize any activity whatsoever; everyone else is locked out. And if anyone tries to tamper with the chain, the deception is obvious to all. It’s the foundation of an all-new Internet that’s safer, more efficient and scalable to accommodate billions of devices.

Investors looking to stay relevant and rich in the brave new world ahead can’t afford to ignore blockchain’s impact, so it’s a story I will continue to follow closely.

4 comments

  1. You hit the nail “dead on it’s head.”

    As a ret’d market advisor, I am discovering you and I see things very similarly! So I always enjoy your insight and comments!

    Peter Markle

    Comment by p. markle on December 19, 2017 at 3:21 pm
  2. As tempting as crypto currencies are I’m resisting temptation. If it looks like a bubble, acts like a bubble, and quacks like a bubble it is a bubble. When the end comes it is going to be a mess. I’m with you Hillary.

    Comment by Joseph Cusano on December 19, 2017 at 11:19 pm
  3. what would you recommend to do, by or just sit on the sideline?

    Comment by george on December 20, 2017 at 5:31 am
  4. Thanks for the article. What are good investment opportunities in blockchain technology?

    Comment by Marshall McDade on December 20, 2017 at 10:03 am

The comments are closed.