It seems like everyone you know is talking about Bitcoin, but what exactly is it? Is it real, does it work, does it have a spot in your portfolio, and is it here to stick around? Today, I want to give just a quick basic background on what exactly Bitcoin is, with no other agenda than to help you have a better understanding for what Bitcoin is.
At its basic core, Bitcoin is a digital currency where transactions are verified and records of those transactions are maintained in a decentralized way, meaning that no government is overseeing this. The value of Bitcoin is mostly driven by hype around the currency and the supply of Bitcoin, much like how a speculative stock trades.
What is the closest thing to Bitcoin? The easiest answer to this question is something along the lines of gold. At one time, gold was the currency that was used across the world and was priced based upon its perceived value, much like Bitcoin is right now. I am sure you have seen that the price of Bitcoin has risen dramatically over the past year. If this will continue is still to be seen, because unlike Gold, there is a specific limited supply of Bitcoin that can exist, which is 21 million Bitcoins. Whatever the amount is, it is our belief that at some point in the future, the price of Bitcoin will become less volatile and trade more so on its tangible value, rather than its perceived value. But where that price settles there is no way to know.
Where is Bitcoin stored? The concept of Bitcoin and where it is stored is somewhat confusing. While it is easy to imagine and picture cash or gold bars sitting in the bank or a vault, Bitcoin lives in the cloud. However, for this reason, this provides Bitcoin with much more potential because it does not need to be stored in one set location. The growth of Bitcoin is not guaranteed, but as the internet and technology continues to play more of a role in our new digital world it does feel like Bitcoin is here to stay.
Does it have a place in your portfolio? It will be some time until Bitcoin is taken completely serious by financial institutions and governments and it may never truly overtake government issued money as the number one currency. However, it is gaining momentum, especially over the past six months as banks and large companies are starting to believe in the currency by opening cryptocurrency trading desk and allowing you to pay for goods with it, like Tesla is now doing.
A whole lot of people smarter than us think it is a good idea to invest in Bitcoin and if it truly does become the real deal, than it will most likely be good for the overall market and economy. So even if you would rather stick with things you know like stocks and bonds, Bitcoin may have its place in your portfolio in a small allocation.
Any opinions are those of Myles Zueger and David Adams Wealth Group and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur.
Prior to making an investment decision, please consult with your financial advisor about your individual situation. The prominent underlying risk of using bitcoin as a medium of exchange is that it is not authorized or regulated by any central bank. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts.
Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.