Categories: Bitcoin Business

Bitcoin buyers beware

Click here to view original web page at

by Mike Connon

As advisors, we typically advise families to take a patient, long-term approach to investing in the market, but the markets themselves often spin on today’s breaking news and hottest holdings. This means we must take the time to learn about the latest financial fads alongside our clients. Cryptocurrency is a prime example.

I eased into the ‘cryptocurrent’ by watching a few Netflix specials about Bitcoin. Not surprisingly, they were surface-level, focusing on asides such as the true identity of Bitcoin founder Satoshi Nakamoto, who may be a composite of individuals across time and space.

Next, I dug a little deeper by taking to the Internet. There, I found that most Bitcoin coverage comes from two divergent sources. First there are the technologists. They focus on the intricacies of the infrastructure, but often display little understanding of the economics involved. Then there are the economists. They’re steeped in economic theory but are often daunted by the technology behind this dramatically new global trading system. Then there are the financial advisors, seeking to bridge the gap and advise our clients accordingly.

Looking past the buzz and excitement, what makes Bitcoin and other cryptocurrencies tick? That’s blockchain technology. It operates as the back office for cryptocurrency transactions. But rather than having centralized ‘bookkeepers’ who own the process, the worldwide public can participate by ‘mining’ for cryptocurrency. Cryptocurrency mining typically calls for a lot of computing power, but essentially, anyone with the correct equipment can use it to solve complex problems and verify transactions.

How does that work? Bitcoin and other cryptocurrency miners mine for blocks to chain together and enter into bookkeeping ‘ledgers,’ which document what trades have occurred and who owns what. If those ledgers go awry, all hell breaks loose.

Miners are drawn by the potential to earn transaction fees (themselves paid as cryptocurrency). Higher transaction fees attract miners to verify the transaction more quickly. Lower fees might mean the requested transaction lingers in limbo, awaiting verification.

In some respects, mining for cryptocurrency represents raw capitalism at work. This is the system’s beauty and curse. With the technology and infrastructure involved, these monetary transactions no longer need rely on central banks or similar financial institutions. If you’re not a fan of bureaucracy, this might sound great. But this free-wheeling system also operates outside of the usual protections associated with legal tender and regulated financial institutions.

This brings me to my next big point about the mining process, especially for Bitcoin. At least in theory, there will only ever be 21 million legitimate bitcoins in circulation. (Currently, 17 million bitcoins are already in circulation.) Those enamored by the technology may be ignoring the classic economic reality of supply and demand. It’s tempting to think that eliminating governmental red tape will set the process free. But Economics 101 still dictates that a cryptocurrency’s spending power is still based on its total circulation (supply) versus its total use (demand).

Just as a company cannot issue new shares ad infinitum without diluting all shareholders’ values (remember the 2000 dot-com crisis?), cryptocurrency miners cannot be compensated with new ‘coins’ forever. And yet, the system itself might collapse if miners are no longer incentivized to continue mining.

Should investors buy into this trend? I’m not saying nobody should buy cryptocurrency. But I would contend that buying Bitcoin is more of a wager than an investment. For those who are intrigued by Bitcoin anyway, I advise them to think of it more like a gold substitute – okay to throw some ‘fun money’ at, but not the core of their investment strategy. Like gold, the price of a bitcoin is based entirely on current demand for it. It’s not like a stock or bond in a company or organization that ultimately produces goods or services of value.

Cryptocurrency may continue to dazzle or it may drastically disappoint; there’s no dependable data to inform us either way.

Mike Connon is a senior financial planner with the McClelland Financial Group at Assante Capital Management.

As advisors, we typically advise families to take a patient, long-term approach to investing in the market, but the markets themselves often spin on today’s breaking […]


Illuminati, Mason, Anonymous I'll never tell. I can tell you this, global power is shifting and those who have the new intelligence are working to acquire this new force. You matter naught except to yourself, therefore prepare for the least expected and make your place in the new world order.

Disqus Comments Loading...
Published by

Recent Posts

Terrorists are turning to Bitcoin for funding, and they’re learning fast

Representational image of Bitcoin. (File: Bloomberg) By Nathaniel Popper Hamas, the militant Palestinian group, has been designated a terrorist organization… Read More

2 hours ago

Latest Faketoshi says he conveniently ‘lost the hard drive’ containing billions in Bitcoin

Just yesterday we told you how there was a new Faketoshi in town, staking a questionable claim to the Bitcoin… Read More

2 hours ago

Study Suggests Scarcity Could Drive Bitcoin Prices to $60,000 by May 2020

Share Tweet Send Share Bitcoin price predictions have been coming thick and fast in recent months as the world’s top… Read More

2 hours ago

“Bitcoin will never hit 50k” says crypto skeptic Peter Schiff

For a man that wants nothing to do with Bitcoin , economist and Euro Pacific Capital CEO Peter Schiff never… Read More

2 hours ago

Casa Releases Node Monitor Service to Improve Bitcoin Network Health

Casa, a crypto firm that provides a private key management service and Bitcoin node machine, has unveiled a node monitor… Read More

2 hours ago

ETC/ETH Technical Analysis: Ethereum Classic breaks higher

Ethereum Classic vs Ethereum: Classic is making a comeback today An important price level has been broken 0.037673 looks to… Read More

2 hours ago

This website uses cookies. We use these cookies to collect data about your interaction with our website for the purpose of continuously improving your experience with our site. For more information we encourage you to read our privacy policy.

Read More