In addition to the headlines championing new heights, here are five things everyone should know about bitcoin.
Bitcoin is hitting new highs, currently hovering around $90,000 for a single coin. The headlines, of course, are going wild about this run-up, but there are some key facts you should know about bitcoin before you jump on the bandwagon.
1. Bitcoin Was First
Bitcoin is the world's first decentralized digital currency. While that sounds big and serious, it’s good to remember the iPhone is older. The cryptocurrency launched at the start of 2009, while the first iPhones became available in mid-2007.
Here’s another fun fact: There are now over 13,000 cryptocurrencies in existence. Bitcoin was the first, and being first has advantages. Don’t believe me? Ask my oldest son …
Given bitcoin is a currency, here’s some perspective on currency: There are less than 190 traditional fiat currencies worldwide. Fiat is not a word we use often. It means government-issued and backed by a government, like the U.S. dollar or euro. It’s the money (aka currency) I grew up with. Bitcoin, however, is neither issued by a government nor backed by one.
Clearly there are a lot more cryptocurrencies than traditional currencies. I’m sure there’s a great analogy here like “pouring water on a Mogwai” to explain why, but I’m no expert. Ask Matt Hougan at Bitwise — he’s an expert.
2. Volatile Value
The price of bitcoin has seen dramatic swings since the blockchain network was created in early 2009. The folks at Bankrate.com noted, “Bitcoin’s price has been on a roller coaster ride since it first debuted in January 2009, but the long-term trajectory has been higher – ‘up and to the right,’ as they say.” See the below chart, and make sure your portfolio’s stomach can handle the ride before you buy.
3. Digital & Decentralized
I don’t think “digital” requires much explanation anymore — heck, you are reading this on the internet right now. However, “decentralized” is not a word we often use. In the world of currencies, “decentralized” means no banks are involved.
With bitcoin, users can send value directly to each other without the need for banks aka intermediaries. This is the part of digital currencies that makes me excited, but it’s also where things get more complicated, because this is where blockchain comes in. If you want to learn more, refill your coffee, get ready to think outside-of-the-box, and check out “Blockchain Facts” on Investopedia.
4. Gaining in Popularity
Call me Captain Obvious, but bitcoin is gaining wider acceptance. Again, see the above chart. The left half of the trendline is essentially flat-lined, but then the heart started to beat! Bitcoin really came alive after its first 10 years of existence because:
- Stalwarts (aka the innovators) stayed the course
- Broad collective consciousness shifted with the rise of new thought leaders creating better education and welcoming more early adopters
- Important figures changed their minds, signaling to the pragmatics that it was ok to jump in the largely uncharted waters
BlackRock Chairman and CEO Larry Fink once called himself a “proud skeptic” of bitcoin. Earlier this month, he said, “[We] believe Bitcoin is an asset class in itself. It is an alternative to other commodities like gold.”
President-elect Trump once said, “I am not a fan of Bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated cryptoassets can facilitate unlawful behavior, including drug trade and other illegal activity.”
People change their mind. It’s normal. No need to point fingers. As we learn and evolve, we gain new perspectives.
The Oracle of Omaha, Warren Buffett, has not changed his mind. He does not believe bitcoin is a viable investment, but his company has invested in bitcoin-adjacent companies like Nu Holdings (NU), a digital bank in Brazil that is known to be crypto-friendly. I’d argue Buffett has at least a toe in the water. Sometimes vegans bite their tongues.
Watching bitcoin gain in popularity reminds me of the tech adoption life cycle. With any new technology — and bitcoin is certainly a technology — the process by which people accept and use it involves learning and adapting to change. New technology adoption and usage is correlated to its performance expectancy, effort expectancy, and social influence.
5. Usage
I’ve talked a lot about bitcoin adoption, but what about usage — especially usage beyond the investment portfolio?
You can buy bitcoin, but what can you buy with bitcoin?
You can certainly do it yourself and convert your bitcoin back to cash, but that’s inconvenient — especially since you already converted your cash to bitcoin, and flipping between currencies gets expensive.
More convenient is a crypto debit card issued by one of the major crypto exchanges or other providers. For example, Coinbase in partnership with Visa offers a crypto debit card. When you use their card, it will automatically convert all cryptocurrency to U.S. dollars for use in purchases and ATM withdrawals. I’ve never used one, so it’s best to do more research to understand all the associated fees.
But what about buying with bitcoin? Well, we are just not there on a broad scale yet. More and more product and service providers like Tesla, AT&T, and Rakuten are now allowing you to buy with bitcoin, but most everyday purchases have some catching up to do.
And it doesn’t end there …
If you are getting serious about bitcoin and decentralized currencies, I would recommend taking the time to read up on the risks and security considerations, and dig deeper into its history. It's both fascinating and fast moving.
For more news, information, and strategy, visit the Crypto Channel.
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