Just how crazy is this Bitcoin craze?
- Shares of The Crypto Company (CRCW) have surged more than 1,800% in the past month and 17,000% in the past three months, as investors and traders have bid up the price of bitcoin (XBT) higher and higher. The Crytpo Company describes itself as a business that “offers a portfolio of digital assets, technologies, and consulting services to the blockchain and cryptocurrency markets” with plans for a “rollout of a full scale, high frequency cryptocurrency trading floor.”
The SEC started an investigating and suspended trading on their stock.
- A small financial tech company that just went public called LongFin (LFIN) has skyrocketed from a low of $4.69 a share in the past week to a high of $142.82 after it announced it was buying a blockchain microlending company named Ziddu.com
- And then there’s Riot Blockchain (RIOT), a company that up until recently was a biotech firm and has decided to get into the crypto business. They added “blockchain” to the company name and now its stock is up more than 300% in the past month.
So, maybe I should change my blog’s name to Bear with the Bitcoin and my tag line to An Alternative Cryptocurrency Blog!
My viewership and followers count could literally explode!
Hopefully WordPress will not suspend my account….
But exactly what is this Bitcoin and cryptocurrency thing anyway and is there a safe way to invest in it?
My wife calls it Monopoly Money because it is not backed by anything like gold or a government.
And in that context, she is correct. Bitcoin and cryptocurrency is a worldwide payment system. Bitcoin is the first decentralized digital currency, as the system works without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. This is where blockchain technology comes into play.
What is Blockchain?
Blockchain, the tech behind Bitcoin, is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data. The Harvard Business Review describes it as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority. This makes blockchains potentially suitable for the recording of events, medical records, and other records management activities, such as identity management, transaction processing, documenting provenance, food traceability or voting.
All of these computational transactions require a lot of processing power. But more on that later.
Investing in Bitcoin:
For me personally, I first heard about Bitcoin back in the spring of 2016. Back then it was less than $500 a coin and a coworker of mine was telling me all about how he was buying some coins in anticipation of the upcoming split or fork in the code. Last time this happened, he said the price went way up. He tried to convince me how easy it was to invest. Just open a virtual wallet on Coinbase, link it to your bank and fund the wallet with some bitcoin. The security person in me said no way am I putting and linking my bank account money in some unregulated international open (somewhat shadowy) platform.
Now Bitcoin is over $16,000 per coin as of this writing.
UPDATE: OK, it was over $16,000 but has since lost about a third of its value in less than a week because other well-known backers of Bitcoin have recently moved their stash to Bitcoin:Cash which is known as a hard fork and a separate cryptocurrency / blockchain not recognized by Bitcoin. That and many online platforms like Coinbase are now accepting other cryptocurrencies. But still well north of $10,000 per coin.
Not investing in actual Bitcoins is perhaps my biggest missed opportunity . . .
And yet, there have been a whole host of security breaches and entire exchanges shut down because they were hacked and millions of bitcoins were stolen.
Still a risky trading platform. IF you are set on buying any crypto-currency, I would highly recommend buying a physical encrypted hardware wallet to secure your PII and money.
And yet, I have not been completely out of the “bitcoin” craze. I admit, from time to time I have bought one share of GBTC (Bitcoin Investment Trust) stock with a wide trailing stop whenever I was in. I was stopped out the first day of the latest pull back this past week, but not before more than doubling my money. So all in all I can’t complain.
Note: This is still a risky way to invest in Bitcoin (any stock or investment vehicle that can lose 1/3 of its value in less than a week is definitely risky) and yes, it limits you to investing in just Bitcoin. That is why I definitely had a trailing stop on this bugger to protect my losses and gains.
Another way to invest now is in the futures market through your broker. I find it interesting that many big financial names were calling the Bitcoin craze a bubble, or even not a real currency, and even worse, a type of Ponzi scheme; and yet, they feel the need to get in on the action by allowing trading.
Blockchain by nature eliminates the middle man and any controlling financial institution, so guess who felt left out of all the action….
Then of course, one could also invest in the crypto craze by becoming a miner. Miners are the people / machines in the peer-to-peer network which validate the blockchain transactions. Most miners get paid a small fraction of which ever cryptocurrency they are mining for each successful transaction they complete. The more machines you have and more computing power you have, the more transactions you can do, and, in theory the more money you can make.
The world-wide power consumption dedicated just to mining is huge.
And so is the quest for more, affordable, power.
So that got me thinking about another possible investment strategy, loosely based on the blockchain craze.
Here one usually has two choices. Make your use and consumption of power more efficient or buy more.
DPW is developing and marketing an energy efficient power system for mining computers and datacenters. Their stock has seen similar hype action as those of Bitcoin and GBTC. Still quite risky in my opinion.
A potentially less risky investment strategy is to invest in companies or ETF’s specific to the energy sector.
Miners have already sought out remote locations with cheap hydro-electric power. One could invest in a utility such as POR which runs hydro-electric plants or one could invest in energy companies involved with supply side of generating electric power such as coal.
Entire datacenters dedicated entirely to the mining of cryptocurrency are being built around the world.
China and Japan are the largest areas of miners and entire datacenters dedicated to mining activities.
In a way, I have already been investing in this indirectly due to The Donald and his tax reform policies with XLE. But BTU and KOL would be viable alternatives as well.
To me, this is a far less risky investment vehicle than trying to time the ups and downs of hyped stocks and currencies, provide potential income (dividends) and are influenced by other stimuli such as tax reform.
The Donald and Tax Reform:
Speaking of The Donald and Tax Reform, I have also put together a list of the most commonly referenced companies expected to benefit from tax reform, re-patriotization of overseas cash and stock buybacks on the right sidebar.
As always, any stock, ETF or fund mentioned is merely a suggestion and IMHO worthy of additional research on your part to see if it fits your investment profile and risk tolerance.
Hope everyone has a safe and happy holiday season.