Gold has traditionally been a safe haven in tumultuous times. But even as gold investors are taking comfort from the recent rise in price in response to geopolitical tensions, the price movement of gold has been weaker than would have been expected from historical models. Many attribute the difference to the growth of crypto-currencies which has become an alternative safe haven to gold.
The most popular form of digital currency has been Bitcoin. Bitcoin was designed as open-source software in 2009 to minimize transaction costs and deregulate currency. It was supposed to revolutionize the way we buy and sell things online, making it faster, cheaper, and safer. But the ride has been rocky for a currency that its creators thought would become as commonly used as credit cards and PayPal.
Yet, the cost of a bitcoin has skyrocketed in 2017. Earlier in the year, the price of one bitcoin was just a shade under $1,000. By August, the price of bitcoin had soared past $4,000. This huge increase in price has led some investors to wonder if they should invest in bitcoin. But how does one even invest in bitcoin in the first place?
The interest in digital currency and Bitcoin has now spawned other forms of cryptocurrencies – Ethereum, Litecoin and Ripple, and has large mutual funds and ETF companies looking to launch their own crypto funds and ETFs. Needless to say, the SEC is not happy with the concept of creating funds and ETFs based on virtual currencies. None have got the nod from SEC so far.
Future Wealth’s View
While there is a compelling case to be made for digital currency to eliminate the middleman, such as banks or other financial institutions, in transactions, and save costs to the consumer and eliminate the need to share sensitive information (like credit card numbers, names, addresses, etc.), we believe, at the present time, there is no advantage with digital currencies other than the anonymity of transactions.
Furthermore, at Future Wealth, we struggle to even the understand the concept of digital currency, forget looking at it as investment vehicle. Companies have assets. Cash is printed. Gold is minted. These are physical objects. The math and science behind creating a Bitcoin is so complex that even the Bitcoin Foundation, which promotes the currency, struggles to explain the concept.
Given all the characteristics of the current forms of digital currencies – unpredictable pricing, lack of safety net, reports of hacking, ties to organized crime and not regulated by any government entity – it is no surprise that the first merchant in Las Vegas to accept Bitcoin is the strip club – The Legends.