The market for bitcoin is looking pretty bullish
— but many advisors think it’s bucking too hard.
The most highly valued cryptocurrency touched a record price high of US$7,879 last week, growing by more than 1,000% in just a year. But sentiment reversed after a planned change to the bitcoin network fell through
, which sent the asset’s price down some 30% by Saturday, reported CNBC. However, it managed to regain some ground on Monday, rallying more than 11% in just over half a day.
“Bitcoin [and other cryptocurrencies] are not for the faint of heart,” Ian Weinberg, CEO of US-based Family Wealth & Pension Management, told CNBC. “It's getting on the radar screen of Wall Street now, but … I don't consider it an investable asset class yet.”
Amy Hubble, certified financial planner and founder of Radix Financial, agreed. She said that given the run-up in cryptocurrency prices, advisors cannot ignore the potential of bitcoin and blockchain technology
. But even after looking into the rising asset class, she still has concerns.
“Bitcoin and other protocol tokens don't have any cash flows, they don't pay dividends, there is no way to systematically determine demand growth for them, and I don't have the technical expertise to determine the value of one cryptocurrency over another," she said.
All cryptocurrencies are underpinned by the blockchain system, which is essentially an electronic ledger of transactions that’s distributed across all the computers in a network. That makes it virtually impossible to reverse transactions or double-spend currency. But because of the computing power required, bitcoin is inconvenient as a medium of exchange for small-value transactions.
“The value of bitcoin is optimized for speculation, not for spending,” Matt Green, a professor of computer science at Johns Hopkins University, told CNBC.
Aside from being decentralized, blockchain allows secure transactions without involving any third parties or intermediaries. That means many cryptocurrency exchanges are unregulated
, which has made bitcoin popular among money launderers and other criminal organizations. “People don't use bitcoin to buy a cup of coffee,” said Samuel Boyd, an advisor at Capital Asset Management Group, who regards bitcoin as the gold standard for cryptocurrencies.
Notwithstanding the recent dip, bitcoin prices are at stratospheric levels, with each coin worth easily above US$6,000 as of 1 PM ET on Nov. 13. A prospective futures contract on bitcoin, as recently announced by CME Group, may further whet the appetites of investors looking to profit from the cryptocurrency’s continued rise and volatility. The combination makes it the hottest game in the financial markets — and that’s not necessarily a good thing.
“Investors need to use truly disposable income, because the investment could go to zero,” Boyd said. “I can't recommend this to clients.”
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