Bitcoin Bubble

December 11, 2017
 
 
 
 
 
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4:47
 

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 The bitcoin price has spiked to $17,000 over the past weekend, $16,600 for one bitcoin at the time of this recording. That's a 1,500% return year-to-date. Actually, a little bit more. So the question today is, is there money still to be made in bitcoin? Or is it too late? Has the ship left the port? Hello, my name is Paul Carroll. I'm the CEO and founder of Efficient Wealth Management, a boutique wealth management firm. Bitcoin is a digital currency, and its power is in the ability to encrypt money to transfer it anywhere around the world without any kind of interference and yet, through something known as blockchain technology, to absolutely validate its efficacy without any doubt whatsoever.

 

Bitcoin.jpg

Now, the blockchain technology is a video of its own, and it will change the world. It will disintermediate local government. Bitcoin, as a blockchain technology, threatens very much to disintermediate many parts of the banking system and even nation-state's federal reserves systems. There is really no thing that you can say that truly is hyperbole given the future of this technology. But digital currencies are in fact fiat currencies, just like the dollar; they're not backed by gold - bitcoin is electronically mined. And again, there's a third video if you ever wanted to know what that means. But because it's electronically mined and there's a cost of production, there's a potential for significant tech disruption. What I mean by that is some new technology or some new methodology could rapidly increase the supply of bitcoin and thereby instantly crush the current value, because the value is, of course, a function of supply and demand.

 

Why has this price ballooned? It went up $2,000 when the CPOE created bitcoin futures. There's a certain amount of sexiness and appeal to this new currency and these new financial futures. But we don't know that this decentralized currency will be the winner. There was Betamax. There was VHS. And Betamax, though the better technology, did not win. VHS got an earlier adoption. Early adoption at this point really hasn't come into play. There are other technologies that use more centralized blockchains, such as Ethereum. Ethereum has seen much more muted returns, and yet it's more likely to be the model, or some version of the model, adopted when finally sovereigns, sovereign states, start creating their own digital currency. And this will happen. I don't know if the US will be the first to the party, but they probably need to be.

 

Because if a country like Switzerland comes up with a digital currency, it will automatically, significantly harm bitcoin currencies that are independent and have no form of distributive control, no central bank. The bigger risk for the United States is that a sovereign digital currency would actually displace the dollar as the world's reserve currency. Something like 70% to 80% of international trade and foreign holdings of currency are in US dollars. The US benefits from what's known as seigniorage, which is we're getting this phenomenal interest-free loan from the rest of the world in return for them using our currency. The risk of the loss of that status, the reserve status, is in no small part because of American money-laundering rules. There is significant overreaching of the rules that has resulted in small countries literally being blocked out of the US banking system.

 

This is something that is not hurting the criminals, because they have - guess what? - bitcoin and other digital currencies. It's gotten to the point where these money-laundering rules are only hurting the good guys. This overreach is really creating a problem that's even greater than the problem it was designed to solve. And it is the single leading risk to the loss of the reserve status of the United States - not China, not the Russians. In fact, the Chinese are very unlikely to be a great digital currency provider. There's not a lot of trust in the Chinese government.

 

That's a long-winded way of saying the future of bitcoin is very, very suspect. It's an extremely speculative investment. And can money be made in it? Well, it's possible. It may go from $17,000 to $20,000 before it drops to $500. But the point is, the party is, if not over, likely close to over. And investing in bitcoin today must be done only with money that you can absolutely afford to lose 100% of without any loss of sleep whatsoever. Because, likely through bitcoin's point of view, this will not end well. We wish you the best of investing success.

 

 Sources:

 

“Bitcoin.” Wikipedia, Wikimedia Foundation, 10 Dec. 2017, en.wikipedia.org/wiki/Bitcoin.

 

Buttonwood. “The Bitcoin Bubble.” The Economist, The Economist Newspaper, 1 Nov. 2017, www.economist.com/blogs/buttonwood/2017/11/greater-fool-theory-0.

 

Buttonwood. “Putting a Price on Bitcoin.” The Economist, The Economist Newspaper, 8 Dec. 2017, www.economist.com/blogs/buttonwood/2017/12/crypto-through-tulips.

 

“Ethereum.” Wikipedia, Wikimedia Foundation, 11 Dec. 2017, en.wikipedia.org/wiki/Ethereum.

 

Lauricella, Tom. “Bitcoin: Is Greed Back?” Morningstar Articles RSS, 1 Dec. 2017, news.morningstar.com/articlenet/article.aspx?id=838916.

 

Mirhaydari, Anthony. “Why Bitcoin Might Be a Bubble (but the Tech Will Last).” Morningstar Articles RSS, 10 Dec. 2017, news.morningstar.com/articlenet/article.aspx?id=839998.

 

“NYSE Bitcoin Index Year to Date Price Returns (Daily).” YCharts, ycharts.com/indices/%5ENYB/ytd_return.

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