Would you invest in someone’s math homework? Well cryptocurrencies are sort of like that. I want to talk about these things before some of you think about putting any money into these. It’s gambling on ability to solve math problems, You may win big or lose big.
Crypto may also be a bubble. In the 1700s in Holland tulips bulbs had value as they were sold at high prices. It created a whole big mania where the costs were astronomical as in worth as much as houses until it burst and people realized they are just pretty flowers.
So cryptos have value as people say they have value just like gold. Well same thing with government money! Yes, but the difference is the government has the ability to raises taxes to cover that value!
“Hey you…yes you! Give more 10% more taxes this year or go to jail for tax evasion.” Get it?
Some downsides of cryptocurrencies
- Crypto like bitcoin are backed by nothing other than 1s and 0s in code
- The values are very volatile as you can see from the chart
- Exchanges can get hacked and then you lose it all. This happened several times.
- You can have a digital wallet. If you forget the digital key/password it’s gone forever too
- It’s used for tax evasion and illicit deals to transfer money like drug deals, arms sales, selling of identities
- There is a lot of crypto owned by early adopters and founders. When these “whales” decide they want to sell the values will plummet. There is a thinking that whenever prices drop whales have been selling. The whole thing may have been a giant scam in a manipulated market. See the term “pump and dump” and watch the Wolf of Wall Street movie to learn more.
- Gains on those are taxable per US government. You buy and sell and make some cash trading. Say hello to the tax man when they find out.
- It’s illegal or restricted in some places like China, India and North Africa
- Crypto mining uses lots of electricity to solve math problems. This causes carbon pollution and is bad for the environment
- Not everyone accepts it. Buy a new Mercedes with Bitcoin? I don’t think so. Order a pepperoni pizza for tonight? Nope. Buy gold with crypto? Yes, actually.
- Transaction fees to move into normal cash can be high. Good luck finding a bitcoin ATM. You convert into cash at exchanges but those are places getting hacked.
- It’s a wild ride
A wild ride for sure. Don’t assume you were lucky enough to buy at the bottom. Many people bought at the top and lost big on the way down. Then they did not stick around for the ride back up. Hindsight is always 20/20 but the future outlook is blurry.
- It is possible to make money but it requires patience, luck and perfect timing. Some people made a bank.
- The technology of block chain may have a future however in tracking.
To me as an alternative investment gold is preferable. It’s easier to sell and it fluctuates less. Everyone takes it. I know I knocked gold in the previous post as an investment but it has proven itself as a store of value over the centuries.
“Hey guy I don’t have cash to pay your but I have these US gold eagle and Austrian Philharmonic gold coins. Is that ok?”
” You bet as long as they are real!” Tell me who turns that down?
Cold hard cash is best however as it doesn’t need to be converted to cash and incur transaction fees as it is already cash.