| by Glenn J. Downing, MBA, CFP® |
I began Part I with this statistic: one in five people in the US have invested in or used cryptocurrency. As Bitcoin becomes more widely accepted – indeed, Fidelity is offering it in 401K accounts – it is high time for me to write about it. Here in Part II I answer the question, Why cryptocurrency?
Fundamentally Bitcoin is one of many cryptocurrencies. It is an asset. It is bought and sold through various exchanges called wallets. It can be used to pay for goods and services. These transactions happen on the blockchain.
The Gold Standard
In 1981 the US came off the gold standard, meaning your currency is backed by nothing beyond the ascription of value of millions of people. Currencies now float one to another. Has the dollar strengthened relative to the Euro? That would make a trip to the European Union cheaper. Has it weakened relative to the pound? That would make a trip to the UK more expensive. And now we have inflation.
Gold has always been a store of value – since Biblical times. Humankind has ascribed great value to it, and it continues to be a universally accepted medium of exchange if for no other reason than its beauty. Delinking the dollar from gold, coupled with the policies of the central bank – the Federal Reserve – gave us inflation.
The point is that gold and precious metals have always been an inflation hedge against purchasing power loss in the dollar.
Inflation
What gives us inflation? Many factors apart from simple supply and demand. The Fed has an inflation target of 2% and considers inflation exceeding 3% excessive. We are currently seeing the highest inflation in 40 years, so I’d say not so well. They walk a tightrope: increase interest rates to curb inflation, but if they go too far the economy will seize up and we’ll have a recession.
Impossible Debt
The entire system of international finance is awash with debt – debts that cannot reasonably be paid off. The current US national debt is over $30 trillion and counting! This amounts to roughly $242,501 debt per taxpayer, in contrast to each taxpayer paying roughly $12,398 in taxes per year. That is an insurmountable difference.
How do the Federal Reserve and the Treasury plan to get us out of this mess? Well, they’ve floated the idea of the digital dollar. The only problem with that is that whoever controls the digital exchange controls you!
Should you invest in it?
I’d say consider it, a small portion, if you consider yourself an aggressive investor. It is also good to have a small portion of your holdings in physical gold and silver – bars and coins. Look at history. Not even 100 years ago the most cultured and educated people in Europe opened concentration camps to exterminate any dissenters and non-Aryan people. Would you have been glad to own physical gold in Weimar Germany when a wheelbarrow full of marks wouldn’t buy a loaf of bread?
Miami is Crypto Currency Central
The Mayor of the City of Miami has been very crypto-forward, even sponsoring a Miami Coin. Our associate, JD Gonzalez, attended a major national Crypto conference here, and reported that the people who are most interested are those who want to limit the intrusion of big tech and government into their personal financial affairs.
At this point there is no pure Bitcoin ETF. The closest is a Bitcoin trust, which we use with our most aggressive investors. Coinbase is a popular exchange, as are FTX and Binance, and there are many others. But be forewarned: it is volatile! The best way to purchase is systematically – a fixed dollar amount each month.
The future is here today, readers. Bitcoin and cryptocurrencies are here to stay, and it is time to look into it seriously.
If you missed it here is Part I in this 2-part Bitcoin series.
