As a financial adviser with degrees and certifications from nationally ranked institutions and four decades in the trenches of money and finance, following many months of arduous study and inquiry, interacting with national and international experts, and watching YouTube and TikTok, I have concluded that, as it relates to Bitcoin, I haven’t the slightest idea what it is.
On the other hand, I did learn the names of the pioneers in the field, men like Sam Bankman-Fried, Zhao Changpeng, Horst Jicha, Fedor Kedrov and Alexia Andriunin, to name a few of the very long list of cryptocurrency superstars. You can visit some of these esteemed financial gurus in prison, though some have completed their sentences and are merely on probation. Others are awaiting sentencing. At least one is on the run from the FBI.
Still, your grandchildren may be getting rich buying Bitcoin while you pile up cash in money market funds or stodgy old blue-chip stocks that pay dividends. The kids are laughing at the old codgers and will continue giggling until their Crypto account vanishes in a flash, as it surely will when the selling starts.
Here are the facts:
1. Cryptocurrencies like Bitcoin are not investments in the traditional sense. They are not companies that deliver products or services. They are not registered with the Securities and Exchange Commission with rules pertaining to disclosures and transparency. They do not have traditional CEOs and Boards of Directors required to protect shareholders’ interests.
2. Cryptocurrencies are not currencies. Currency, or money, is issued and backed by sovereign governments. The exchange rate, or value, of a country’s currency, is established, governed, and managed by national governments and recognized by other nations.
3. Cryptocurrencies are ’manufactured’ by massive computer networks owned and managed by a collective involving developers, miners, and users. This confederacy of shared interests comes together in conferences and online to evolve loose rules and standards of operation. These rules are subject to change, and there is no governing body to enforce them.
How do cryptocurrencies establish value? In this case, they are more like securities than currencies. Value is established in the market based on supply and demand. A Bitcoin is worth what a willing buyer will pay, and a willing seller will accept. As far as I can determine, there are just $20 billion Bitcoins available, and at this writing, they are valued at about $100,000 each. This means the entire market for Bitcoin is $2 trillion dollars. In 2023, the U.S. economy was $28 trillion. The U.S. stock market is valued at about $60 trillion. There are 15 companies in the U.S. valued at a trillion dollars or more including Amazon, Microsoft, Tesla, Apple and more.
