Crypto Legitimacy?

Most investment managers and financial planners avoid bitcoins as an investment or a currency, for a few reasons. 

First, the coins are not backed by any government or asset.  They were created by computers that solve complex algorithms, and therefore have no intrinsic value.  

Second, because transactions between parties is very difficult, if not impossible to trace.  Many of those using bitcoins or other so-called “cryptocurrencies” are illegal.  And by that I mean that the bitcoins are exchanged for illegal weaponry, drugs, or other shady goods and services.

Finally, an investment in bitcoins can be incredibly volatile and unpredictable, which makes them unsuitable for investment portfolios.  Over the last few years, the bitcoin price has risen from under $1,000 to almost $20,000, before plummeting to around $3,000 last year.  And of course, nobody knows whether that’s $3,000 more than they’re actually worth.

But the whole cryptocurrency world received an unexpected boost from an unlikely source last week. President Donald Trump himself suddenly and for no apparent reason Tweeted that he wasn’t a fan of “unregulated crypto assets,” which, he said, were based on “thin air”.

Check out the article here.  It’s quite a read.

You might think this would be a disaster for bitcoin owners, but in fact the bitcoin price rose following the President’s comments.  And bitcoin traders and investors were enthusiastic about the sudden credibility and publicity his tweets generated in the general public.  

In fact, the tweets may have catapulted bitcoin and cryptocurrencies into an issue in the next presidential election: what was called by a crypto exchange executive “possibly the largest bull signal for [bitcoin] ever”.

And something I consider especially fascinating: Presidential hopeful Andrew Yang, the most technologically sophisticated Democratic candidate, is accepting campaign donations in bitcoin, etherium and other cryptocurrencies.  

Is this a sign that bitcoin will become a mainstream investment? Possibly – after all, stranger things have happened.  But don’t look for a bitcoin investment trend among us financial planners and advisors. The truth is, investments in bitcoin currency are highly speculative and it is possible for an investor to lose the entire amount invested.  Instead, we generally prefer stocks, bonds, cash, real estate and other investments which actually have something tangible backing them.