Bitcoin and Friends

One of the biggest investment stories since 2017 has been cryptocurrencies.  Everyone has heard of Bitcoin but there are many other cryptocurrencies available for purchase.  What had started out in 2009 as an alternative form of exchange has blossomed into an alternative market characterized by mystery and risk.

One economic argument for cryptocurrencies is that it is a potential substitute for fiat currency, administered and printed by central banks of nations.  These are more commonly known as the U.S. Dollar, Russian Ruble, Argentinean Peso, and the Canadian Dollar to name just a few.  Just as ancient civilizations created gold and silver coins to trade and barter, and those coins were replaced by either other forms of currency or currencies of other nation states, economic theory dictates that cryptocurrencies are a substitute for currencies.Bitcoin and Friends You Me NYCSo what is the true value of these cryptocurrencies?  Oftentimes those who are skeptical of cryptocurrencies validly state that there is nothing backing them up.  True, but there is nothing backing up the U.S. Dollar or any of the other national currencies, certainly not gold as we have discontinued the Gold Standard for decades.  Instead, it is the full faith that one has in the currency.  Honestly, while I value developed economies, I think a truly precious metal such as gold, silver or platinum would make me feel more at ease in a time of economic crisis.  But faith is all we have to go on.Bitcoin and Friends You Me NYCThe way I view the value of cryptocurrencies is that they defy standard financial valuation techniques so one should look at them as simple economic supply and demand.  But then one has to view the cryptocurrency market and see that what started out with Bitcoin has grown to include hundreds of coins.  Not to belittle the complexity of this topic, but I view this as a market as ripe for depreciation.  When Bitcoin was $2,000 I felt it was too expensive and could crash.  Same at $5,000, $10,000, and eventually $20,000.  Now it is trading at approximately $7,100.  Do I think it is worthless?  No.  Do I think it is worth $100,000?  No.  I do not even think its value is as a substitute to common currency.  I think the value of cryptocurrencies is in the blockchain technology.  It allows a decentralized ledger to be created that finalizes a transaction between 2 parties anonymously.Bitcoin and Friends You Me NYCThe way I see it, this is a new technology.  Just like the internet was new when it was commercialized in the 1990s.  The first iteration of utility is never the most efficient.  Think of the World Wide Web and AOL.  Think about how much has changed since then.  I can see the same sort of change when it comes to blockchain technology.  The future is not Bitcoin, but the underlying technology.  Expect blockchain technology to become more ubiquitous in our everyday lives over the next 10 years.  I cannot predict the exact end products, but think of this technology not for financial transactions but for tracking shipments at UPS and the many products in Walmart.  There are many uses to be thought of that we cannot even see at this very point in time.  Just like few were thinking about Facebook or Snapchat in those AOL days.  Even if Bitcoin crashes, which I think it will, the technology behind it is in its nascent stages.  As for an investment, I would keep my distance and look elsewhere.

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