How many of you have asked recently, “What the hell is Bitcoin?” In 2017 it mutated from an obscure new age concept to the investment world’s flavor of the month. News emerged recently of a Bitcoin hedge fund that was up an astonishing 25-thousand percent, while the value of the coin itself (is it an actual coin?) is up about 1,600 percent this year – down from a peak of nearly 2,000 percent but still just flat out remarkable.
Bitcoin may or may not be an actual coin, with a current worth of about 16-thousand dollars apiece (Psssst- I’ll trade you a roll of wheat pennies for one.) Some insist the coin (pictured below) is fictitious, a conjured-up image of a unit to be used solely for purposes of measurement and value. Bitcoin is known as a “cryptocurrency,” which is defined on Wikipedia as “a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions.” Uh, what? Maybe it’s not a coin then. The reference to cryptography basically means Bitcoin is supposed to be a more secure and secretive method of currency exchange, outside the watchful gaze of financial regulators. Its short history includes a preferred status as currency among online drug dealers.
Curiously, winners in the recent Bitcoin run-up include the Winklevoss twins, who may be familiar from the legal struggle over control of Facebook. They were there at the beginning – Harvard classmates of Mark Zuckerberg. The twins sued and won a $65 million settlement from Zuckerberg, which they used to buy a Bitcoin stake now valued at more than $1.6 billion, or at least it was worth that much closer to the peak.
So that’s all good, right? Or is it just too good to be true? The Securities and Exchange Commission is trying to figure that out. It has suspended trading of a Bitcoin stock, the Crypto Company, until January 3, 2018 amid “concerns regarding the accuracy and adequacy of information” about compensation paid to promote the firm and plans for insider sales. The SEC seems to be worried about potential scams centering on Bitcoin and other digital currencies. Financial experts are warning that the trading frenzy over so-called crypto stocks is reminiscent of the dotcom and tech stock mania of the late 1990s. That, as you may recall, did not end well for a number of investors.
You may be asking, “Why Bitcoin?” Why anything, for that matter? A look back to the very beginnings of any number of monetary systems might well reveal a moment when value was assigned to a seemingly random object. It’s simple, really, provided there is public buy-in for the value – that’s the tricky part, not to mention the monetary complexity that follows. Bitcoin caught on.
There’s an old adage about investing that goes something like this: by the time you learn about an opportunity in the mainstream it’s probably too late. I happened to hear a couple of guys talking about Bitcoin recently while in San Francisco’s Union Square, so that was my signal that I missed yet another get-rich-quick scheme, one of dozens in my lifetime. I seem to have little feel for all that, which is one reason why I’m not a wealthy investor. Then again, a lot of investors probably don’t write much. If I could have one or the other I’d choose this; actually, I have chosen this, although it really feels like it chose me. Having said that, though, I wouldn’t mind finding out what both roles are like.