Thursday December 28, 2017 1 comments
By Steve Porter
Who wouldn’t want to get rich fast?
Of course, everyone would like to do that, because our lives are short and finding ways to make massive amounts of moolah in a hurry are always appealing.
The latest incarnation of that fantasy is Bitcoin and the whole “cryptocurrency craze.”
I’m not going to bore you with the details of how cryptocurrency works, because it’s frankly mostly over my head.
But the nut of it is it’s a new way to buy and sell things in a marketplace that is relatively unregulated as opposed to those nasty dollars and banking systems we’ve been using.
Some high-profile types have apparently latched onto it, like Bill Gates, but why he needs even more money is beyond me.
Others are saying Bitcoin and its ilk are a continuation of the same old song-and-dance that con artists have been selling through the ages.
And regulators are beginning to issue warnings to those caught up in the Bitcoin craze that has contributed to its “value” shooting up by more than 1,000 percent in 2017.
William Galvin, Massachusetts' top securities regulator, recently said his office issued a warning on Bitcoin because the digital currency is "entirely speculation."
"It doesn't pass the smell test," Galvin said in a recent interview on CNBC."
"There is no product here. This is entirely speculation. That's already been proven by the high gyrations of the value. It's also subject to manipulation, because no one can explain it (and) no one can control it."
Bitcoin has soared more than 1,500 percent over the last 12 months with a record high of $19,800 hit in mid-December.
On Dec. 13, Galvin issued a statement listing seven reasons why Bitcoin may be a "worthless product." The document is likely the first investor advisory on Bitcoin from a state.
Federal regulators have also stepped up their warnings on cryptocurrencies and related investments this month.
“We don't always agree, but we all seem to agree that this is a problem," Galvin said.
U.S. Securities and Exchange Commission Chairman Jay Clayton issued a lengthy statement on Dec. 11 about the dangers of investing in cryptocurrencies and initial coin offerings.
The Financial Industry Regulatory Authority recently issued an investor alert on "cryptocurrency-related stock scams."
"Don't be fooled by unrealistic predictions of returns and claims made through press releases, spam email, telemarketing calls or posted online or in social media threads," the FINRA alert said. "These actions may be signs of a classic 'pump and dump' fraud."
Cryptocurrency proponents see it changing the world as much as the Internet did. The technology eliminates the need for a third-party intermediary by creating a quick, permanent record of transactions between two parties.
But with Bitcoin rollercoasting in value in late 2017, its volatility is giving many the shudders on what it may eventually prove to be.
“Nobody knows the ultimate value of this underlying asset,” said Edward Stringham, president of the American Institute for Economic Research, a Massachusetts-based research group.
“We cannot predict whether it’s going to be zero or $1 million or anything in between.”
Still, that hasn’t stopped many from frantically beating the drum about not missing the Bitcoin rocketship as it zooms into the financial stratosphere.
“If you miss this opportunity, you'll kick yourself for the rest of your life as you watch these digital currencies blow up in value over the next few months. Don't waste another second hesitating,” said Tom Dyson, a financial writer who has been accused of taking part in some alleged get-rich-quick scams.
I’m more inclined to listen to billionaire investor Warren Buffett, who says Bitcoin and cryptocurrency is basically a mirage being chased by investors with FOMO -- Fear of Missing Out.
"You can't value Bitcoin because it's not a value-producing asset," Buffet said recently. "Stay away from it. It's a mirage, basically. The idea that it has some huge intrinsic value is just a joke, in my view."
Mitch Tuchman of Market Watch offers a simple explanation of why Bitcoin has soared in value in recent weeks and why it’s unlikely to hold much of that value over the long-run.
“Given that Bitcoin is supposed to replace cash, what is the ultimate source of cash flow from digital coins created on the Internet?” Tuchman asks.
“It’s dollars flowing from the pockets of buyers who want to own those coins. Cut off the supply of new investors and the Bitcoin craze ends.”
Investing is always a risky endeavor to some extent. But to me, Bitcoin is too far in the realm of “If we all hold hands and wish really hard, it will pay off.”
I say good luck with that.