Back in March, I wrote an article titled “Bitcoin 101: Could Cryptocurrencies Eventually Replace the Dollar.” While that article still stands up as just a factual reference, my thoughts on it have changed slightly. The price of Bitcoin is actually the exact same from when I wrote that piece, though with much more volatility. I still believe that the value in these cryptocurrencies is worthless—a sentiment shared by Jamie Dimon. Only time will tell if this is, in fact, the case. However, over the last couple weeks, my thoughts of “I should never own these” have changed.
There are now over 6,000 crypto coins in the universe and more popping up each day. The most popular is Bitcoin with a market cap of $1.1 trillion. The second most popular is Ethereum, with a market cap of $450 billion. For the Ethereum fans, this is what is used to buy NFTs, and there is value in both for those bullish in the space. In third goes Cardona with a market cap of $73 billion. The rest of the cryptocurrencies out there add up to what the Ethereum market cap is alone, so they’re rather small. Dogecoin was initially created as a joke, but now has a market cap of $31 billion, mostly due to tweets and comments from Mark Cubin and Elon Musk.
While I fully agree with Jamie Dimon that there is no intrinsic value other than that there is a limited supply, I have decided to start thinking about these as simply a gamble with a high chance of losing money. “What? You invest to lose money?” you ask. No, not investing like one would into companies that make money or can make money like stocks. Gambling like a slot machine, where the coins chosen are worth more later. Choose the right few, and maybe one might get rich if they sell them. Or maybe they lose it all. How much of your net worth would you put into a slot machine? Well, my answer to that is probably something very, very small.
Since crypto is not a currency or securities per the SEC, you cannot hold a cryptocurrency in traditional brokerage accounts yet. Even if you could, it would not be something today that I would feel comfortable recommending for clients. Will my thoughts change again? I am always open to saying I was wrong, if crypto in its current format is here to stay. I think this space will change dramatically in the future.
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