This is a mania no doubt and a setback is sure to come. Like a Gold Rush, people are confusing upward price moves as validation and everyone is jumping on the bandwagon. We’ve seen this one before and we know how this ends. Please be careful!!! When speculative manias like this occur, Warren Buffet comes to mind “…we should be fearful when others are greedy…” If that doesn’t do it for you, how about Vanguard’s Founder Jack Bogle who sounded a direct warning this week, “Avoid bitcoin like the plague!”[i]
Bitcoin is fascinating and creates many interesting possibilities (learn more: 10 Important Facts On Bitcoin). However, buying them today at these prices is pure speculation and not an investment nor a sensible currency purchase. Investments need to have an underlying tangible value, and a currency needs price stability. Bitcoin currently offers neither. It's way too volatile to conduct the simplest of transactions; can you imagine how expensive a visit to my barber could get in the 30 minutes it takes to finish my haircut?
Digital currencies like bitcoin are more fitting for something like the cannabis market in the US as it struggles for federal legalization. Since the federal banking system is off limits for state-approved cannabis businesses, bitcoin may provide the necessary cloak to keep the Feds away. However, I doubt you want to buy bitcoins as a long term investment or for your grandchildren’s college education fund.
Blockchainis the real story behind bitcoin. It solved the problem early versions of digital currencies had with double counting or counterfeiting by using a formula-based validation, identification and tracking system used by “miners” to confirm transactions. It is this unique blockchain technology that could change how we do numerous things like stock trades, online voting, renting cars, notarizing documents and storing health care records.[ii]
Digital currencies have a big future in online commerce; in fact someday we may have Fedcoins backed by the US Government (bitcoin won’t like that!). But these currencies are just one of many potential blockbusters to come from blockchain. So if the temptation to dive head first into bitcoin is becoming a bit much, take solace in the fact that companies all over the world are researching how blockchain can enhance their products and services. And while we may not be investing your assets directly into bitcoin, its very existence may be the key to significant innovation in companies you already own.
Finally, when it doubt, I suggest you refer to Meg Green’s Rules of The Money Game, Rule # 10, “If it sounds too good to be true, it probably is!
[i] The Wealth Advisor, 11/28/2017
[ii] “The Promise of Blockchain: The Trust Machine,” The Economist, 10/31/2015