“Happiness cannot be traveled to, owned, earned, worn or consumed. Happiness is the spiritual experience of living every minute with love, grace, and gratitude.”” – Denis Waitley
Last Friday I appeared on a podcast called “So Money with Farnoosh Torabi,” (click here to listen). One of the topics that came up was market volatility and it got me thinking about one of the top topics that clients are asking me right now. As I glanced through the recent emails, I noticed the number of questions coming up about Bitcoin; what is it, am I buying any, and should it be purchased? I hope the following information helps to educate you on this topic!
To have or not to have, that is the question?
What is Bitcoin?
CNNtech describes Bitcoin in the following manner: “Bitcoin is a *new* currency that was created in 2009 by an *unknown* person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, *no banks*! Bitcoin can be *used* to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games.” I’ve highlighted a few words in the definition that really stand out to me and I think should stand out to you as well.
The fact that it is a new currency that was “created” by an unknown person is the first red alarm in my head. Perhaps that is because I’ve always believed in the Warren Buffet style of investing, “never invest in something you don’t understand.” I don’t understand how some unknown person can decide to create a form of currency; I’m a full disclosure type of gal, so this fact is bothersome to me.
It can be “used” for purchases anonymously. Some find this an attractive feature, I worry that in the wrong hands, this could allow for very bad things to happen and with no way to determine who was at fault. I won’t list all the things in this blog, but use your imagination. Would you want your kids to be able to purchase certain items? What about using it to build life threatening materials?
How do you purchase Bitcoins?
I highlighted above the fact that “no banks” are involved - really? Where does the initial funding coming from?
Your first step is to open what is called a bitcoin wallet, depending on what level you want. Then to own bitcoin, you can:
Buy on an exchange
Accept as form of payment
- Mine for them – this one needs a little explanation. When bitcoin was first created, only 21 million bitcoins were created. Once they are all “mined” then the only option to obtain will be the first two. Want more detail on this – read this article by CNBC, it’s a little dated, but it does an excellent job explaining it further.
Would I recommend investing in it?
No. I would not. I do not believe in putting client’s money in an unregulated investment, nor does the volatility of the investment fit within the investment policy for any of the client’s I work with.
I want to show you a chart of what Bitcoin did this morning from the open until 10:56 AM. This is just today.
Now let me show you the 3-month chart:
Compare that to the S&P 500 Index for the last three months:
Clearly the volatility is very different between the two and the data and regulations exist to provide us with information about the underlying positions.
As always, if you have questions or topics you’d like us to cover, drop us a line!