Cryptocurrency has become the popular phrase among millennials investors, with success stories popping up left and right about young investors who got rich by putting some money towards things like Bitcoin years ago, reaping the benefits nowadays thanks to some savvy and patience. Even today, “How much Bitcoin do you have?” remains a common question, with Cryptocurrency and Blockchain still the most talked about, and least understood, sectors of the economy in quite some time. Since Bitcoin’s meteoric rise at the end of 2017, followed by a crash in 2018, fans and skeptics now have a new kind of debate. So, is this the next Internet? Or is it a bunch of smoke and mirrors that we’ll all soon forget about?
The concept of a universal currency is not all that farfetched. There was a time in which the world was clearly segregated by hardline borders and unique cultures with their own languages, governments and lifestyles. Thanks to globalization, the world is now a much smaller place with open lines of communication and English being spoken in almost every corner of the world. The European Union (EU) created a consolidated governance with one currency, the Euro, less than two decades ago (1999). So why not take it a step further, and what better place than on the web with cryptocurrency?
This decentralized currency has scared off some of the most recognized investors, however. Ken Griffin, the billionaire manager of Citadel Hedge Fund, proclaims that he, “does not know a single portfolio manager looking to buy crypto.” Congressman Brad Sherman went a step further by recently asking the House of Representatives Financial Services Committee to prohibit Americans from buying or mining cryptocurrency, per Digital Trends. Legal uncertainty, fraud and volatility of currency are just a few of the factors deterring such critics. Facebook has put a ban on advertising financial products associated with deceptive practices, particularly targeting cryptocurrency. And, finally, there’s the Oracle of Omaha, Warren Buffett, who’s claimed that the asset doesn’t produce anything except more buyers looking to sell.
On the other side of this argument, one could easily propose what currency or business has not started out as an unorganized outlier? Like everything, there’s a beginning, hence the business world’s new buzz word, “disruption”. There was a time when people were terrified to trade in a money clip full of bills for a little card, now many carry a wallet full of plastic linking to banks they’ve never stepped foot in. Grandma could never have imagined skipping by the library to pull up news on a phone with no wire that could fit right in her pocket. Technology always goes through the phases of laughable bewilderment, followed by euphoric optimism, before maturing to widespread acceptance in everyday life.
These believers have bolstered a market cap on cryptocurrency — which exceeded $800 billion at the beginning of this year — so, suddenly, an instrument this large can no longer be ignored by banking and financial institutions. Blackrock, the world’s largest asset manager, has now formed a working group to at least evaluate the crypto market. With a goal of increasing the ease of transactions and lowering costs, large companies like Overstock and Expedia are now accepting Bitcoin. In 2017, Japan and Russia legalized the use of cryptocurrency. While it’s still considered highly speculative, it is deserving of attention.
In the era of online banking, online dating and working remotely from online, the one constant most consumers fear is cybersecurity. Initial Coin Offerings (ICOs) do fall under the purview of the Securities and Exchange Commission (SEC). The SEC clearly warns the public about heightened fraud and manipulation due to lack of regulation. Invested funds may quickly travel abroad without consumer knowledge, sometimes making the pursuit of bad actors impossible.
For instance, on August 6, 2010, transactions on Bitcoin were not properly verified before entering the blockchain. On August 15, the vulnerability was exploited, and over 184 billion bitcoins were created in one transaction (this error was quickly fixed). While blockchain technology does attempt to create the most encrypted form of communication yet, one must wonder if anything is truly beyond the reach of hackers.
So, is the monster correction on Bitcoin year-to-date the beginning of the end, or the perfect opportunity to buy? The “investing gurus” can continue to debate, with most experts asserting that 99 percent of crypto proponents have no idea how the system actually works, confirming their view of a sham. Here’s a fun fact worth noting, though: the microchip in a radio transmitter converts audio into a digitized packet transmitted via electromagnetic waves to a nearby cell tower, which sends the signal to a base station to be pushed out to a radio receiver that converts the signal to audio again. This transmission, which happens worldwide at the speed of light, is how your cell phone works. Do you understand the ins and outs of that? Probably not, but over seven billion of us enjoy a cell phone subscription.
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Bryan M. Kuderna is a CERTIFIED FINANCIAL PLANNER™, Life Underwriter Training Council Fellow and Investment Adviser Representative with Kuderna Financial Team. He is a perennial qualifier for the industry’s prestigious Million Dollar Round Table®, Leaders Club and Inner Circle. He is the author of the best-selling book, “MILLENNIAL MILLIONAIRE- A Guide to Become a Millionaire by 30”.