WTF (What the Finance) is Bitcoin? Let’s talk about it

bitcoin, denver financial planner

Welcome to a new recurring feature of my blog called WTF – What the Finance?  Here I will attempt to make understandable the maze of financial jargon we planners love to speak and this week I’m focusing on Bitcoin.

What’s this Bitcoin thing?

So, what’s all the fuss about trading Bitcoin?  Should you be in?  Out?  Over?  Under?  My position in Bitcoin is “over.”  As in I’m over it.

 

First, some explanation:  Bitcoin is one of many (but apparently the most famous) types of cryptocurrency.  Cryptocurrency can be used as payment for online transactions.  However, there is no central bank or country backing the value of the currency.  No regulation, either.

How can I use Bitcoin?

You can’t use Bitcoin at King Soopers or TJ Maxx.  Yet.  Bitcoin is accepted as payment at over 125,000 merchants, so maybe it has a future as a widely accepted currency and will become a part of our daily lives like the internet and chocolate.  However, a big concern about cryptocurrencies is that you can use it to buy some pretty illegal stuff on the internet.  Use your imagination.

Should I be investing in it?

Why has Bitcoin gotten so much attention lately?  Well, people have been betting that the value of Bitcoin (remember, backed by no government taxation or hard asset) will go up, so they are trading the digital “coins” and driving the price of the currency itself way up.  Any time an investment, term used loosely, goes up 1000% as Bitcoin did in 2017, people are going to be talking about it.

 

Always remember, what goes up 1000% in a year can likely drop by that amount in half the time.  As of this writing in early February, Bitcoin had dropped below $7,000 from a high of $18,000 just a month earlier.  If you got in at the peak of the frenzy, you have lost a ton of money.  And not even some awesome shoes or a car to show for it.

 

Agustin Carstens, general manager of the Bank for International Settlements (an umbrella organization for the world’s central banks), described bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster.” The last refers to the energy-intensive process of “mining” the digital currency.*  He said a bunch of other stuff that was negative, but I thought that line was the best.

 

An acquaintance told me a couple of months ago that she was trading Bitcoin.  She asked me if I was trading Bitcoin, too.  I replied, “No, I’m a financial planner.”

 

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