Should I Buy Cryptocurrency?

Are you hip to cryptocurrency? As I introduced in my last “No Dumb Questions,”
unless you’re a cutting-edge computer kid, the technical details get pretty complicated,
pretty fast. That said, you don’t need a financial economics
degree to successfully invest in stocks and bonds. Can the same be said for cryptocurrency? Sorry if I’m ruining the suspense but, bottom
line, if you do decide to hop on this fast-running freight train, my opinion is that you’re
speculating, not investing. And what do I mean by that? Well, that’s what today’s NDQ is all about. Check it out, and then check in on future
segments by connecting with me on LinkedIn, or subscribing to my YouTube channel
and clicking on that bell. What’s a Bitcoin worth? A dollar? A hundred dollars? A hundred thousand dollars? This chart shows how rapidly the answer has
been changing! More to the point, what might a Bitcoin be
worth if you hang onto it? Having exploded from obscurity into one of
the great “get rich quick” parties, should you be getting in while the getting is good? As I introduced in my last video, cryptocurrency
can be exciting stuff, with tons of potential. Just as smart phones exploded from “what
the heck is this?” to “how did I ever live without it?” so too might cryptocurrency
technology flourish as an innovative worldwide exchange. OR NOT. As promising as “perfect world” possibilities
may be for cryptocurrency, there are at least a couple of compelling reasons you might want
to sit this one out right now. First, there are a lot of risks inherent to
the cryptocurrency craze. For starters, there are significant regulatory
risks. There’s a very real possibility that governments
may decide to pile mountains of regulatory roadblocks in front of this currently
free-wheeling freight train. Some countries have already banned cryptocurrency. Others may require burdensome reporting. They also may decide to tax the heck out of
it, if they can figure out how. These and other regulations could severely
impact the liquidity and the value of your coinage. There is also the ever-present threat of
being pickpocketed by cyberthieves. It’s already happened several times, with
millions of dollars of value vaporized in the blink of an iPhone. Granted, the same thing can happen elsewhere,
but there is far more government protection and insurance coverage for your regulated accounts. Then there are the technological risks. Without going too deep into cryptocurrency
operations, a system that was working pretty well in its development days is facing some
serious scaling challenges lately. Imagine if your favourite cyber café were suddenly
discovered by the entire world. The human beings, computing power and terawatts
of electricity required to keep everything humming could quickly overload the system. One recent post estimated that if the Bitcoin
network alone continues to grow apace, by February 2020, it will suck away more electricity
than the entire world uses today. That’s a lot of potential buzzkill for your
happily-ever-after Bitcoin collection, and one reason you might want to think twice before
you pile your life’s savings into them. Then again, every investment carries some risk. If there were no risk, there’d be no expected
return. That’s why we need to address another important point. Cryptocurrency simply doesn’t fit into our
principles of evidence-based investing … at least not yet. Let’s return to my opening question: How
much is Bitcoin worth? Stick with me because I’m going to get a
little financial-econ on you here. In his column “Bitcoin & Its Risks,”
BAM ALLIANCE Director of Research Larry Swedroe summarizes how market valuations occur. “With stocks,” he says, “we can look
at valuation metrics, like earnings yield. With bonds, we can use the current yield-to-maturity. And with assets like reinsurance or lending
… we have historical evidence to make appropriate estimates.” You can’t do any of these with cryptocurrency,
Larry explains, “There simply is no tangible relationship between any economic or financial
parameters and Bitcoin prices.” So here are some of the big, fat ways buying cryptocurrency differs from investing: Evidence-based investing calls for estimating
an asset’s expected return, based on all kinds of informed fundamentals,
like Larry just described. Evidence-based investing also calls for us
to factor in how different asset classes interact with one another. This helps us fit each piece into a unified
portfolio whole that we can manage according to an individual’s goals and risk tolerances. Last but not least, evidence-based investing
calls for a long-term, buy and hold and rebalance strategy. Cryptocurrency purchases simply don’t sync
with these parameters. Sure, they can have a price, but they can’t
effectively be valued for planning purposes. And they’re so combustible at this time,
they make an active volcano chain seem boring. Win or lose with them by a lot or a little,
it’ll be a matter of random luck – speculation – not as a result of thoughtfully structured
investment strategy. But do you still want to give cryptocurrency a go? Be my guest … but do yourself these favors:
Consider it on par with an entertaining trip to the casino. Nothing ventured, nothing gained – but don’t
venture any more than you can afford to lose. Educate yourself, try to pick a reputable
“casino” in which to play. And think of all of it as fun money outside of the investments you’re
going to use to fund your ongoing lifestyle. If you do strike it rich, consider taking
profits off the table frequently, and investing them more traditionally. That way, if the bubble bursts, you won’t
lose everything you’ve won. Last but not least, bonne chance!

7 thoughts on “Should I Buy Cryptocurrency?”

  1. I think this video is good advice for the average person who cannot handle risk. If your approaching retirement advising against risk is wise.

    But on a technological level theres nothing governments can do. Regulators have control over a centralized internet where there is a company or a bunch of servers to shut down. As the decentralized internet is built that will change. When you talk about hacking thats a total lack of understanding or lack of communicating the difference between centralized and decentralized. The bitcoin protocol cannot currently be hacked and never has. When you talk about hacks you are talking about a centralized exchange. The centralized exchange binance just announced they are turning into a decentralized exchange. Regulators and governments have no method of enforcement to a decentralized internet. Crypto currency will allow all the people in the third world to be banked and take part in the world economy. Theres currently 3 billion unbanked people on earth right now. It will allow people in corrupt countries to have a secure currency. Japan has already declared bitcoin legal tender. I agree noone knows what crypto currency will be here in 15 years.. but technology only moves forward. Any country will a hard line stance will get left behind in the new world economy. Its a tough pill to swallow for authority to lose control of finance. But its well underway from countries that want to avoid US Sanctions and the oil dollar.

  2. A bitcoin is worth what you can con someone into paying you for it. Some are making billions. People buying bitcoin will not grasp this video. I worked for a video slot machine owner and we set some of the machines at zero payout. We made serious money and so are the controllers of bitcoin.

  3. a lot of FUD in this video, you better be buying crypto because all the banks are in the process of implementing it even though they aren't openly announcing it, and every dogshit traditional paper "asset" you currently own is debt based, highly leveraged or grossly overvalued, you will learn this the hard way in the coming years, be smart and buy the bluechip cryptos BTC, ETH, LTC, XRP, XLM

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