There has been a lot of commotion lately around crypto currencies, and most of us have heard of Bitcoin, which is a very popular cryptocurrency, but the truth is that there are thousands of them with ranging values. Nevertheless; Bitcoin is up about 300% in the last year, and many think it’s going to go much higher. So is Bitcoin, or any other cryptocurrencies a solid investment long term for your portfolio? Let’s discuss the positives and negatives.
Background
If you have no idea what a cryptocurrency is, I suggest taking this article for a spin first. If you have, here’s a brief background. A cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Basically, its a currency that does not require any tracking, because it uses a secure technological exchange to do so instead.
Recent statements by thought leaders
Jamie Dimon, the CEO of JP Morgan, and unarguably one the of the most influential thought speakers of our time, has publicly stated that Bitcoin and cryptocurrencies are a complete fraud, and that they will never be legitimized by the U.S. Government.
Similarly, Ray Dalio, Chairman and Founder of Bridgewater Associates LP (the largest hedge fund globally, managing $150 billion) publicly announced in several interviews on Bloomberg and CNBC, that he believes Bitcoin, and cryptocurrencies in general, are a bubble. When he says bubble, he is referring to a rise in price, with lack of intrinsic value backing it. Basically, he is stating that it is a speculative market, which is a fancy way of saying that “investors” are gambling it will keep going up in value. It’s similar to someone saying I’ve got this potato that is worth $3,000, and then others that own potatoes start saying their potatoes are worth the same. Think about this logically, eventually the prices will fall back to normal levels, since no real event caused the prices of potatoes to rise.
The future of the banking industry
Thanks to blockchain, many thought leaders (ie very knowledgable technology business leaders) believe that the current financial system we live in will be entirely different just a few decades from now, and there is a question as to whether bitcoin fits into that picture.
Simply put, blockchain can be thought of in a similar light to what the Internet was in the early 1990s, but instead of connectivity, transactions are at the heart of the blockchain technology. Let’s think about this, currently there are many steps that must be taken to transfer money from one party to another, and we currently involve financial and legal intermediaries in all aspects. The simple point; blockchain could put this entire process out of existence. The details behind blockchain make for an article on their own, but Bitcoin is seen as the software, if you will, of blockchain. By creating a currency utilized on the blockchain platform, Bitcoin hopes to become a new form of currency that requires no intermediaries. Although there is hope for the cryptocurrency, the main immense hurtle will be the US government adopting it as a currency, which i doubt I’ll see in my lifetime (there are an uncountable number of roadblocks).
Why this matters to you
This article should serve as a fair warning, if you plan to invest in Bitcoin, understand that it’s very speculative, and although there is potential for “some gains”, the currency is very volatile and there is a great opportunity to lose all of your money.
Note that finedtunedfinances.com nor any of its affiliates are investment advisors, and this article in no way serves as investment advice. Consult a registered investment advisor before making an investment decision.