David H. Kinder, RFC®, ChFC, CLU
What's the Craze About Bitcoin?
Updated: Jan 18
Bitcoin seems to be taking up a lot of investment & market news over the past few months, so it's highly appropriate for me to talk about.
First, let me start with some investment advice from Warren Buffett:
Invest in what you know... and nothing else.
There is far more solid disciplined investment advice in the above link that is worth listening and taking to heed.
If you are still wondering what the heck Bitcoin is... here is a decent article:
Here is another cautionary article about Bitcoin:
Here is this week's NASAA (North American Securities Administrators Association) press release about Bitcoin and other cryptocurrencies:
In short: "Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart." NASAA further highlighted the risks of cryptocurrency investments including minimal regulatory oversight, the possibility of cybersecurity breaches, lack of insurance, high volatility, and reliance on unproven companies. The SEC commended NASAA's statement, stressing that cryptocurrencies, "lack many important characteristics of traditional currencies, including sovereign backing and responsibility, and now are being promoted more as investment opportunities than efficient mediums for exchange."
These are some press releases from 2014 also about Bitcoin:
Now, for full disclosure, I am not a registered investment advisor or registered rep (at this time, but I have been before) to offer investment advice. However, for general financial advice, I wouldn't invest any more than you can afford to COMPLETELY LOSE, if you chose to invest in Bitcoin or similar investments. It is VERY possible that it's all built up on a house of cards and can crumble at any time. However, I do not know.
These factors concern me about Bitcoin: 1. Virtual currency is an electronic medium of exchange that, unlike real money, is not controlled or backed by a central government or central bank.
2. Virtual currency is subject to minimal regulation,susceptible to cyber-attacks and there may be no recourse should the virtual currency disappear.
3. Virtual currency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
4. Investments tied to virtual currency may be unsuitable for most investors due to their volatility.
5. Investors in virtual currency will be highly reliant upon unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
6. Investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties, to protect their e-Wallets from theft.
Even The Big Bang Theory talks about point #6:
This all feels a little too similar to the "Dot-Com" bubble and crash of the 2000-2002. These companies were starting up websites and valuations were not quite right for these businesses. Too much "hot air" and not enough substance behind these companies caused their stocks to fall. Personally, I think that'll also happen with these "crypto-currencies" as people come up with their own "money" that isn't backed by anything substantial. To me, this feels like a hot-air bubble... and almost nothing else.
I hope I'm wrong. Investors... be cautious!