Is Bitcoin a Digital Currency or a Digital Tulip Bulb mania? Many investors are wondering if electronic money deserve a place in their portfolios.
WHAT IS BITCOIN?
- Bitcoin is a digital currency also called a “cryptocurrency.”
- It is a form of code made by computers and stored in a digital wallet.
- Transactions are recorded on a public ledger called blockchain.
- Decentralized — there’s no government, bank or other authority that controls it.
- Finite supply: 21 million units (16 million in circulation).
- 1,000: More than a thousand digital currencies, with more sprouting up every day.
HOW DO YOU GET A BITCOIN?
- Digital currency exchanges like Coinbase — where you can buy, sell and store Bitcoins.
- Getting started is about as complicated as setting up a Paypal account.
- You can use Bitcoin to buy things from more than 100,000 merchants.
- You can sell it. Or you can just hang on to it.
- Recent price, ~$17,000 per bitcoin.
WHAT PLACE IF ANY SHOULD BITCOIN PLAY IN A DIVERSIFIED PORTFOLIO?
- Skip it for now.
- 2017 Bitcoin price range: $1000 to $19000!
- Bubble Mania? Reminiscent of tulip mania that hit Holland in the 1600s, tech stocks in the 1990s, real estate in the 2000s.
- Bitcoin has no fundamentals. No revenue or cash flows, no interest yield, and no physical assets backing it up.
- Warren Buffett quote: “FOMO” (fear of missing out). Supply and demand forces at work at present.
- High-risk products with an unproven track record and high price volatility.
- High risk of fraud: Multi-million dollar digital thefts have already occurred!
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