Bitcoin: a currency wrapped in a riddle
We don’t expect interest in Bitcoin to wane anytime soon. With a future price that could go to $20,000 or $0, it’s the ultimate speculative vehicle. It might even be the perfect holiday gift for the person who has everything and might be happy with a little bit of nothing.
Any discussion of Bitcoin, an extremely innovative digital currency, can sound like science fiction. And maybe it is. But with its value up 7500 percent this year, it’s definitely getting attention. We won’t even dream of explaining all there is to know about Bitcoin, but here are a few tasty tidbits.
- Bitcoin is a medium of exchange that allows the movement of value from one online wallet to another much faster than the traditional bank wire method.
- A small number of retailers and other business accept Bitcoins – albeit mostly for marketing purposes, ie Richard Branson’s space flights.
- There is no Bitcoin company; it was devised by an anonymous person or group. So you can’t buy stock in the issuer, and there is no customer service to support BitCoin errors.
- It gets stranger. New coins are “mined” by networks of computers solving increasingly difficult cryptographic puzzles. The Economist points out that the constantly increasing computing resources needed to do this could ultimately cause its demise.
- The number of coins that can be mined is capped at 21,000,000. As far as we know. If that cap gets hacked, the value will almost certainly go to zero.
- Because thousands of computers are involved in the processing of any single Bitcoin transaction, the currency is thought to be protected from forgery, theft and hacking. Believers hope so.
- Nothing for something, sort of. There are 41 other ‘crypto-currencies’ looking to cash in on the popularity and all of them are artificial and started at a value of $0. See http://coinmarketcap.com/
With no central bank, no transparent governing body, no company behind it, the whole thing could disappear tomorrow. Already a fake Chinese exchange that opened its doors earlier this year abruptly vanished with $4.1Million in virtually untraceable Bitcoin deposits.
There are other problems. For instance, because transactions can be made anonymously or close to it, it’s attractive for drug, gun and other smuggling payments.
Are we really talking about this?
Sure, it all sounds a little bit Kurt Vonnegut. But some fairly well informed currency experts, including a guy named Ben Bernanke, admit it is worth paying attention to as a potentially viable exchange medium. Go figure.
BitCoin is much too small to be part of an index portfolio and we won’t be investing in the Bitcoin ETF anytime soon, sorry Winklevossi. As a point of reference, BitCoin has a market cap of $13.8B while the world’s supply of gold is nearly 500x bigger at $6.8 trillion and silver is at $490 billion.
Bitcoin is sort of like gold, but instead of its value being based on a physical nugget of a scarce and shiny metal, it’s backed by someone picturing something shiny in their head. If some middle school kid figures out a way to forge Bitcoins, they could end up like 100 trillion dollar notes from Zimbabwe, more useful as napkins than currency.
If you’re interested, here are a couple good articles that expand on the subject.
Want to know more?
Give us a call at 617-217-2772 – we’d love to hear what’s on your mind
delivered to your inbox
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.