I have commented before that Mr. FireStation is a pretty boring investor. My belief has always been that slow & steady wins the race. Our son, however, has delved into the mysterious world of cryptocurrency, which if you are not familiar with it, perhaps sounds like something only Superman would use.
Beginning in January, when we were vacationing in Mexico, our 19 year old son ‘invested’ about $65 in Bitcoin and Etherium ‘tokens’ through a website called Coinbase.com – which is a marketplace for buying and selling cryptocurrencies.
A computer science major, his motivation was to experiment in the ‘nerdy money’ phenomenon, which some still believe only exist to enable illicit dealings on the ‘dark web’. In fact, many ordinary people, are starting to buy into the concept of alternate currencies, which are not regulated or controlled by bureaucrats for political aims.
In his words, our son invested because: “I’ve always found interesting the things that technology makes accessible – basically overnight – things that weren’t possible before. For example, AirBNB has allowed you to stay anywhere in the world for a fraction of the price of hotels. Uber has allowed anyone to become a taxi service in their spare time. YouTube is the biggest video site in the world, and 95% of the videos are free (with content arguably better than on cable). In these ways, my Dad and I have had a lot of talks about “The End of Power” – basically, that power is becoming distributed more and more to all, of us, as consumers.
Advances in technology and cryptography (if you want to go down the rabbit hole, you can read about the blockchain), have now allowed the currency that we use to also be distributed. We no longer need the government to provide something as basic and powerful (I’d argue nothing is more powerful in economy) than currency. Currency is literally how we distribute power, yet, we need no centralized power to control it. If decentralization is the future, why not invest in Bitcoin?”
Interesting thoughts like these led him to make the investment, even on his college student budget. I was skeptical when he told me about it, but as long as he wasn’t betting his college savings on the speculation – why not?
The background and growth of Bitcoin is amazing. Launched in 2009 with the publishing of a white paper (by a oerson(s) under the pseudonym of Satoshi Nakamoto) explaining how the currency would be structured. Initially, the Bitcoins had no real value – but a single Bitcoin now trades for over $2,500 (down from a peak of over $3K). To give you a sense of the Bitcoin frenzy, In 2010, a user tried to auction off 10K Bitcoins for $50 and found not a single buyer. Today, that many Bitcoins would be worth $25 million.
A Libertarian’s dream, cryptocurrencies are basically being driven by the public’s mistrust of government central banking. To the faithful, the structure of the online marketplace is more honest and transparent than the “faith and trust of the US dollar”. Their dream is that someday this distributed currency could become the world’s reserve currency.
If that seems hard to fathom, both Japan and Australia have formally recognized it as a legal method of payment this year, after vetting the fundamentals and security of the structure of the currency. There have been a number of articles written about families in Venezuela – and other countries with hyperinflation – who would have lost everything if it weren’t for cryptocurrencies.
To give you a sense of what this has meant for my son’s investment, his original stake of $65 is now worth $705 today. It has grown more than 10x in just in a period of five months! His Bitcoin portion grew 2x while his Etherium (ETH) went up an incredible 2000%. He cashed out about two-thirds of his investments a couple weeks ago (to pay for an iPad) and still holds about $350 in his account – a still amazing 5x his January investment.
He is smart enough to know that the value could go either “way up, or way down” almost at any moment. He encouraged me to publish this post quickly before all of the numbers change again – which almost happens by the second – but they’ve stayed pretty constant for a couple weeks.
How cryptocurrencies play out over the long haul is anyone’s guess. Given the potential size of the market – the world’s $65T GDP – it might be worth taking a gamble.
What do you think of this emerging trend?
Image Credit: Pixabay
8 thoughts on “Cryptocurrency – Fad or Future?”
Currency investing is really just speculation, whether it be in soverign or crypto currency. It’s a zero sum game with no value generation, just a method to measure other things of value.
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Agree – the bet here is that the ‘crowd’ is better at managing currency than the ‘crown’.
Cryptocurrency is the kryptonite of super-heated speculative bets. Reminds me of tulip-mania in Holland centuries ago, which devastated economies and investors when it imploded. Objects imbued with extrinsic value far exceeding instrinsic worth are for speculators, not investors. I’m an investor.
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Agree that it is speculative, that said the unaudited Federal Reserve seems like they regularly play in tulip bulb mania themselves!
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