Should You "Invest" in Cryptocurrencies?
I don’t own any bitcoins.
Or ether (Ethereum).
Or Dogecoin, or Litecoin, or Peercoin, or Namecoin, or Ripple, or Primecoin, or Gridcoin, or Blackcoin, or Vertcoin, or any other of the literally hundreds of so-called cryptocurrencies that have now emerged.
It’s not that I missed the boat.
In fact, I recommended readers of my Wall Street’s Underground Profits newsletter begin buying Bitcoin back in 2013 (four years ago!). Following that advice would see your position up 159% at today’s Bitcoin price.
What you have now is a bunch of Johnny-come-latelys. And that’s dangerous.
Here’s what I said about Bitcoin back in 2013 to my paid readers:
Whether you love it, hate it, or haven’t heard of it... Bitcoin’s meteoric rise warrants your attention. Bitcoin is a digital currency that’s completely independent from central banks.
Like gold, there is only a finite amount of it available. Because of that, it is the first currency that could truly work on a universal level.
And people and governments the world over are taking notice.
This new, independent and rapidly growing currency functions like a giant, government-proof community. Instead of depending on a bank to store the money for you, you hold it yourself.
It is highly-encrypted and its peer-to-peer system means that no one can fudge the numbers. As a result, you never have to worry about your money being lost when overly risky banks make risky loans or bets on the market.
All that is still true.
What has changed is that it’s no longer just Bitcoin.
As of this writing there are over 900 cryptocurrencies available on the Internet. That changes things a bit. It makes them less scarce and, at least in my humble opinion, less valuable.
Bitcoin's exclusivity — like gold — is one of the primary things that originally made it valuable. Only a finite amount could be “mined”.
But where's the value if a new cryptocurrency pops up every day?
I have other concerns as well…
First, this recent edition of the cryptocraze is seeing buyers with little to no investment experience, which is the hallmark of a bubble. At the risk of sounding old, kids (20-somethings) are simply buying it to buy it.
For many of them, they have no experience with stocks or valuations or market cycles. Instead, these kids cut their teeth on digital culture and coinage, using Farmville cash to buy crypto-cows on Facebook as a childhood activity.
For them it’s a game… not an investment. And that’s also dangerous.
While the original mantra of Bitcoin was utility, security, and transparency… those “investing” in it today aren’t using it for anything. It’s simply being bought as a speculation.
So far this year over $180 million has been raised via what are being called Initial Coin Offerings. These are coin startups (remember there are 900 of them now!) that generate no revenue or value, but simply take your dollars in exchange for their crypto token.
For me, that’s like going to a random casino and exchanging your dollars for chips and holding those chips as an investment strategy.
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Not to mention there is currently no legal or regulatory framework in place for these types of offerings. It also isn’t clear yet how governments will handle it.
If it’s digital it can be tracked. And mark my words: the government will want its cut of crypto.
And lastly, if you want to buy something as a store of value… don’t you want to be able to physically possess it?
You can’t hold any cryptocurrency in your hand… and for me that may be the biggest turnoff. I want something tangible.
If only there were some sort of financial instrument you could buy that acts as a store of value and money... that isn’t reported to the government or traceable via online transactions... that there isn’t 900 of… and that you can hold in your hand.
And I’d be buying it before any cryptocurrency.
Call it like you see it,
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.
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