A Bit More About Bitcoin…

by | Dec 8, 2017 | Asset Management

Is Bitcoin a currency? Is Bitcoin simply an asset? Who will ultimately be right about Bitcoin?

Kevin O’Leary, from the TV show Shark Tank and also Chairman of O Shares ETF’s recently commented about Bitcoin, and the trouble he ran into when trying to pay for something with Bitcoin. That is, using bitcoin as currency:

“If clearly neither side thinks it is stable enough to transfer in one minute, and they don’t even want to take one minute of risk, it is not a currency,” he said. “The fact is, it is so unstable — volatility is both directions, it’s up and it’s down — that nobody in a substantive transaction will take that risk,” O’Leary says. “So it is a long way from being a currency.”

But O’Leary did add that he thinks (right now) Bitcoin is “one of the most successful assets on the planet right now because it’s a global speculation.”

Fellow Shark Tank member Mark Cuban described Bitcoin as a risk, stating in a Vanity Fair piece:

“If you’re a true adventurer and you really wanna throw the hail Mary, you might take 10 percent put it in Bitcoin or Ethereum, but if you do that, you’ve gotta pretend you’ve already lost your money, and it’s like collecting art, it’s like collecting baseball cards, it’s like collecting shoes, you know, something’s worth what somebody else will pay for it.”

No mention from Cuban about whether Bitcoin will mature into the global currency some protagonists project. It appears, for the present time, there are lots of folks subscribing to the “greater fool” theory. That is, the price of an object is justified simply because the owner believes the item can be sold to someone else at a higher price.

Charles Kindleberger (who passed away in 2003), was an economist at MIT and wrote many books. One book, written in the 1970’s, became very well-known, “Manias, Panics, and Crashes” and gets resurrected each time a new type of bubble appears on the horizon. Now the bubble is Bitcoin. And one of Kindleberger’s most memorable lines applies here:

“There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich…”

See, when your neighbor (says he) owns Bitcoin, and you don’t, life can be unbearable, right?

We had a roundtable discussion today regarding Bitcoin and covered some of the topics we have discussed in conversations with folks who have called in regarding Bitcoin. At the present time, Bitcoin seems like such a huge risk, it may not be suitable or appropriate for most investors.

You can find the link to the podcast here: https://mullooly.net/bitcoin-investors-need-know/11983

While I’m at it, I’ll also link to a post I wrote in 2012 regarding Sir Isaac Newton and his experience (get wiped out financially) in the South Seas Bubble. Yes, it happens, even to smart people. https://mullooly.net/isaac-newton-smart-guy-bad-investment-manager/2913

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