Quick Thought on Bitcoin

A 2017 recap seems lacking absent Bitcoin. Bitcoin captured imaginations by rocketing from $1,000 in January to a $19,000 high in December.

Bitcoin uses an innovation called “blockchain”. Millions of computers work together to form a communal ledger that verifies and records transactions. Bitcoin aims to be a virtual or “crypto”-currency. In theory, cryptocurrencies offer a secure, borderless, anonymous, and efficient way to transact that cuts out the middlemen (banks).

Cryptocurrencies do not fit within our investment discipline or circle of competence. We do not know where Bitcoin’s price is headed – nor do we think anyone does. Still, count us among the curious observers.

The fear-of-missing-out (FOMO) is very familiar. FOMO causes folks to ignore red flags – no intrinsic value, extreme volatility (three 85+% crashes since 2010), countless competitors, low technology adoption, etc.

Second, in July we discussed how the 1990s tech bubble may not have been wrong, just early. The financial impact of innovations often takes many years to play out. Blockchain’s Google or Facebook may not have been borne yet.

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Blockchain appears to be a wonderful technology that may eventually yield tremendous economic and societal value. No matter how Bitcoin’s story unfolds, it will be an interesting study in FOMO, markets, and psychology.