Talk about money: Take caution with bitcoin
by Mark Rosenberg
Jan 16, 2014 | 2314 views | 2 2 comments | 4 4 recommendations | email to a friend | print

I got some negative responses on my column last month about bitcoin, including one from a reader who said it was “totally irresponsible.” I need to clarify.

I was writing about the growing use of bitcoin as a method of payment, not as an investment. I spoke with Austin Twohig, CEO of the Santa Cruz Experience, a shuttle bus service, who said he likes customers to pay by bitcoin because it is safer than credit cards.

He also said he is holding onto a small amount of bitcoin as an investment and has enjoyed watching its price rise.

Not every column I write for the Press-Banner offers investment advice. Some do. I’ve written about stocks, bonds and mutual funds. I’ve also written about electric cars, parcel taxes and other topics that don’t involve investment advice but fit with the theme of “Talk About Money.”

The bitcoin column gave a local merchant’s view on a global issue that has commanded much attention recently, so I thought it was a topic of interest. But in no way do I consider bitcoin to be an investment.

I do, however, share some of the concerns of bitcoin investors, who worry that the U.S. is printing money like confetti.

The growth of U.S. debt is accelerating. When President Obama took office the national debt stood at $10.6 trillion. Today it is over $17 trillion and according to some calculations is growing by $6.6 billion per day.        

Many investors worry that the only way the U.S. can pay these debts is by printing more and more dollars, which will reduce the value of those dollars, meaning your savings would buy less and less.

Some people are holding bitcoin to protect their savings from a weakening dollar, the way some investors hold gold. Some say the rising popularity of bitcoin contributed to gold’s price drop in 2013 — the metal’s first annual decline in the 21st century.

But there are three factors that I think make gold more reliable:

- History: I like to examine how an investment has performed over many years, through different economic cycles. I can’t do that with bitcoin because it has only been around since 2009. Gold’s use as a store of value can be traced back almost to the beginning of civilization.

- Supply: Even though the supply of bitcoin is capped at 21 million, I’m not convinced that it can’t be increased. And who’s to stop software developers from creating another digital currency to rival bitcoin. Gold’s supply can also be increased, but it isn’t easy: It takes five tons of ore to yield one ounce of gold.

- Uses: Bitcoin is a medium of exchange and claims to be a store of value, but, like paper money, it serves no other purpose. Gold is used in the manufacture of millions of computers, TVs and cell phones every year. A single ounce of gold can be drawn into a wire 50 miles long. Gold is and always has been used in jewelry all over the world.

The value of bitcoin has risen dramatically over its short history. Maybe it will continue to do well. But for investors who worry that their dollars will lose buying power, I think gold is a better alternative than bitcoin.

- Mark Rosenberg is a financial adviser with Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 831-439-9910 or mrosenberg@fwg.com.

Comments
(2)
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Hank1970
|
January 17, 2014
Real estate, Space travel,Bitcoin ATM's,Ingame payments even lemonade stands... there have been a lot of great development for bitcoin that help boost the Bitcoin ecosystem. Unfortunately people generally don't really understand the basics of bitcoin.

For everybody who want to practice with bitcoin, at the following website you can receive free bitcoins:

http://freebitco.in/?r=202775

All you have to to is fill out your bitcoinadress and create a password, there is no registration procedure. You receive free bitcoins every hour in some sort of lottery (up to - 0.2 btc!). They really pay out. The fun part is that you can useyour winnings to play higher/lower to win additional coins.
Mike J
|
January 17, 2014
"Bitcoin is a medium of exchange and claims to be a store of value, but, like paper money, it serves no other purpose."

WOW. Please do some basic research before you publish. Bitcoin is NOT just money. It is a publicly audited, verified and certified ledger! If I write a novel, I can upload the entire thing into the blockchain and sign it with my private key providing incontrovertible proof that I wrote it without filing a single legal document. And that is just a snowflake on the tip of the iceberg!


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