Home About Archives RSS Feed

The Independent Investor: Is Bitcoin Broken?

By Bill Schmick
iBerkshires columnist
Bitcoin, Ethreum, Ripple and a number of other crypto currencies have had a terrible week. Some of these digital dollars have lost 25 percent overnight, if not more. Today Bitcoin, itself, is down almost 50 percent from that level. Those who warned that this mania would come to a tragic end are crowing now. Are they right?
 
Last July, I wrote my first column on the phenomena of crypto currencies. Since then, Bitcoin vaulted to historic highs, briefly touching $20,000 on Dec. 17. Since then clients, friends, relatives and yes, even my mother-in-law, have asked me if I thought crypto currencies were a good investment.
 
The answer will always depend on the price I'm willing to pay for something. Until now, I have simply sat back and watched as the mania unfolded. Today Bitcoin is down almost 50 percent from the highs. Many financial historians have compared the run-up (and decline) in crypto currencies to the great Tulip Bulb Mania of the 17th century. Back then, one tulip bulb in Holland was said to be worth 10 times the annual income of a skilled craftsman. The craze ended in disaster for one and all.
 
Since even I am not old enough to remember the Tulip Bulb craze, let's look instead at the Dot-Com boom and bust. I do see a lot of similarities between the insatiable demand for anything with Bitcoin, crypto or Block chain in the name today, and companies in the early 2000s that doubled and tripled simply by changing their name to something "techy." 
 
The question to ask is whether or not crypto currencies represent anything more than "animal spirits." In a global market where just about every other investment vehicle is gaining ground, why not Bitcoin? In other words is it simply part of the "greater fool theory" where you're buying Bitcoin simply to sell it at a higher price to someone else?
 
The crypto cheerleaders will tell you that investments like Bitcoin are real. The currency can be used to purchase things, products, etc. Another argument-the scarcity of crypto currencies compared to the world's traditional currencies. Others say the block chain technology that drives Bitcoin and other crypto currencies is "secure" because the underlying technology records and verifies every transaction using exact copies of a database spread on computers all over the world.
 
Some of those arguments may hold water, but not all of them. The fact is that it is notoriously difficult to buy anything with this stuff. The currency network is slow and buying anything small takes a lot of effort and time. Besides, who would want to spend this electronic money on a television or cup of coffee when next week the price might be 20 percent higher than it is now? 
 
The fact that more and more crypto currencies are popping up kind of flies in the face of the "scarcity" argument. There is nothing to prevent an inexhaustible amount of these currencies to flood the world over time. And just because no one has figured out how to hack the block chain technology doesn't mean that they won't.
 
There have been several cases already where millions in crypto currencies have been stolen or hacked throughout the world.  Finally, various governments are bound and determined to either regulate this free-wheeling market, or shut it down completely. In this example, China and South Korea come to mind.
 
While the controversy rages, crypto currencies will continue to trade and plenty of money will be made on both sides of this market. It appears that as time goes by, technical analysis is beginning to work in assisting traders in determining which way these currencies are going, at least in the short term. Right now, the betting is that Bitcoin will bottom out  around here, only a little below the price where it traded overnight ($9,969).
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
The White Stuff Is Coming! The White Stuff Is Coming!
North Berkshire Waste District Transfer Stations Pass Inspection
Community TV Stations: Proposed FCC Rule Could Gut Funding
Williamstown Planning Board Debates Accessory Dwelling Unit Bylaw
Harrington Announces First Assistant, Transition Team Chair
Signs of the Season: Christmas Trees Have Arrived at Carr
Great American Smokeout Set For Nov. 15
BArT Announces First Quarter Honor Roll
Time to Think About Year-End Investment Moves
North Adams Happenings: Nov. 14-20

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (272)
Independent Investor (372)
Archives:
November 2018 (3)
November 2017 (2)
October 2018 (5)
September 2018 (4)
August 2018 (9)
July 2018 (2)
June 2018 (8)
May 2018 (8)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
December 2017 (8)
Tags:
Oil Recession Wall Street Stocks Markets Congress Fiscal Cliff Retirement Economy Currency Rally Bailout Metals Energy Debt Ceiling Jobs Europe Taxes Crisis Stock Market Federal Reserve Japan Stimulus Election Pullback Selloff Europe Deficit Euro Banks Interest Rates Housing Commodities Debt Greece
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Stocks Take a Breather
The Independent Investor: Mid-Term Results Take Investor Focus Off Washington
The Independent Investor: Time to Check Your Risk Tolerance
@theMarket: October Lives Up to Its Name
The Independent Investor: Textbooks Worth Their Weight in Gold
The Independent Investor: The Student Loan Crisis
@theMarket: Will China Be Next?
The Independent Investor: Estate Planning Is for All of Us
@theMarket: The Market's Last Quarter
The Independent Investor: Credit Freeze for Free