Ep. 51: Bitcoin & Investing

For those without sound… Contact Me!

Welcome back to Money Matters! My name is Michael and I’m here to help guide you in becoming a better and more confident investor. Bitcoin went over $50k, needless to say, it has my attention and while I still might be in the minority, I know others have for sure heard of Bitcoin. So what is Bitcoin? This is where it becomes a tad ambiguous because to some it’s a commodity and to others, it’s digital cash. From my understanding a research Bitcoin is software. It’s a program that was designed by a human who called themselves Satoshi Makamoto. This program allows people to exchange values directly with each other. And since its inception in 2008, it has been gain popularity ever since.

The reason bitcoin is different than anything we’ve seen is this software is run across a network of linked computers that run independently from one another. This way no one party has control over the network, likewise no central bank and no gov’t can manipulate the currency’s value.

There’s this ongoing ledger where every single bitcoin transaction is recorded where anyone can see it. This is called the “blockchain”. The currency’s database hasn’t been pierced since it went live in ’09 which is why more and more people are trusting the technology.

When dealing with the value of bitcoin it’s important to point out that there is no intrinsic value that’s used with other types of investment. What determines the price is what another person is willing to pay for it. Which leads to our next conversation. Is bitcoin a good investment?

In short, for what my team and I do for people and businesses in the community, our answer is no. Bitcoin-related securities are considered high-risk and can’t be purchased through Raymond James. This is because bitcoin is at this time completely speculative. Especially when looking at it from an investment standpoint in trying to implement bitcoin into the stocks, bonds, cash conversation surrounding our client's financial plans and goals. More so the ones who are in or nearing retirement. I like the law of large numbers, and diversification when dealing with financial matters. It helps me create plans with a certain amount of accuracy given the unknown aspect of the future. And Bitcoin’s future at this time is unknown, the sample size is too small. But what it does have for certain is volatility. According to the Wall Street Journal, it was up 350% in 2020 but fell 64% in February and March, which was twice the amount of sell-off when matched up against stocks. There is truly no limit to how high, or low bitcoin can go. Bitcoin doesn’t play by the rules of traditional currencies – where the price is the result of the open market and the gov’t monetary policies that issue that specific currency. Who knows what will happen in the future.

And while gov’t has oversights and regulations when dealing with their money supply at this time regulation is still being rolled out for bitcoin. For example here in the U.S coinbase would be a well-regulated, credible exchange. More mainstream services are starting to allow bitcoin trading directly inside their accounts as well. I just caution with the unknown, likewise the volatility that you understand, or at least set expectations of the huge swings in value that can happen so you’re not caught off guard. And if you’re going to invest, still to the rules of proper diversification, where you’re only investing a fraction of your portfolio in bitcoin, that way it’s not the end all be all if it moves against you.