Bitcoin… I gotta have some!_copy

It is important to remember that Bitcoin is a zero-sum game. For every winner there will be losers!

“My brother, who doesn’t know anything about investing, the clerk in the local store and the guys at work are all asking about buying bitcoin.  Bitcoin just went from $10,000 to $11,000 in one day!!! I heard today its now up to $16.000!!! Millions of dollars are being made… The value is skyrocketing… and I don’t have any.  How do I get some Bitcoin so I can get in on this before it goes up even further?   I need to do something fast! “

Are you having those feelings?  Come on, tell the truth.  It’s a completely normal human emotion – it’s called “the fear of missing out”.  No different than mothers running all over town the week before Christmas trying to find the last Bitty-Baby. 

Meanwhile, well-known leaders and analysts of financial firms are calling it a bubble.  “A sure sign of a bubble is when the shoeshine boy is talking up a stock.”

Let me be clear about our position on Bitcoin.  We are NOT investing in it. 

Is it a real currency? 

Is it a store of value?

Is it the new way to buy and sell things? 

Is it the way to hide your assets from taxes/government regulation? 

All these questions are the basis for why Bitcoin may possibly become something universal . . . the next new currency.

So far there is nothing about Bitcoin concerning its use as a currency or transaction vehicle. There are rumors that it is being used in Venezuela to buy things . . . but I can’t find a single place where this is verified.  There has been some recognition of Bitcoin by a few governments, but no new surge in transactions have been documented.  There has been growth in the number of intermediaries who are generating fees in the buying, selling and holding of Bitcoin, but they are insiders who are making money. 

There are clear signs of pricing becoming irrational… a bubble. The price in recent weeks has gone parabolic on no real new news other than retail speculators getting in. From hundreds to thousands, $5,000 to 10,000 in months and $11,000, now to $16,000.  Why would its value go up 100 times?  Was it mispriced two weeks ago or is it mispriced now?

There has been no clarity or change surrounding Bitcoin as either a store of value or a transaction vehicle. The “ledger” of all transactions kept on multiple computers is touted as its safety, but tens of millions of dollars of Bitcoin have disappeared from the electronic “wallets” in which they were supposedly stored – vanished. 

There are no regulations, no FDIC insurance, no requirement for custodians to have any reserved capital and no legal jurisdiction. There is no actual security from accident, fraud or theft. 

As to being a means of transacting the world’s commerce, Bitcoin is limited to a few hundred transactions at a time because of the architecture. Even the electricity required for the computers to participate in the transactions and the transmission across all the linked computers is so substantial that there is now a meaningful cost per transaction.

The Bitcoin bottom line is that people are taking some of their hard-earned money and sending it electronically to an “electronic wallet” that they cannot control and may disappear in a flash. Bitcoin investors buy electronic notations documented on a ledger in hopes that when you want to sell, someone else will want to pay even more…and hope they are sent back real currency in return.

More than anything else, it is important to remember that Bitcoin is a zero-sum game. For every winner there will be losers, especially those to hang on through the price increases and fail to take profits, which could vanish in a moment.

It is possible that we are seeing the emergence of a new mechanism of business? 

Maybe…the underlying technology – block-chain – is creative and used used by corporations to facilitate business and business transactions. Bitcoin is one product created using block-chain, and there are others.

As with any new concept, there will be winners and losers . . . and there are risks.  Today the risks of investor loss are tangible and success, growth and future value are not guaranteed.  If Block-chain has long-term value, the true value-creators will emerge and will offer a long-term growth opportunity.  Remember, you didn’t have to buy Microsoft, Apple or Walmart way back in the 1980’s to have made an incredible investment over the past decade or so.  

God Bless,