The Rise of Bitcoin

Americans love an underdog. When this fledgling currency first entered the field it took a fair amount of time to define it. Then people had to learn what it was to understand what it is and how it works. What has yet to be understood is how this cryptocurrency has gained in popularity and where the ceiling is. Perhaps more importantly, where the basement is, as there seem to be no illusions that what goes up must come down, the question is the rate and scale. How far into orbit will this currency reach? On some exchanges, the value of a Bitcoin is over $20,000. “At the current cost, the value of all Bitcoin in circulation is about $300 billion. To get a sense of how big that is, all the shares of Goldman Sachs are worth about $90 billion” according to the New York Times.

Bring in the big guns

Much like fledgling countries cannot gain a foothold on the world stage until recognized by a larger group of nations, so seems the story of Bitcoin. What started on the dark web has stepped onto the main stage with backers from traditional Wall Street companies. For many retail investors, the backing of hedge funds and institutional investors drove them into the market. In fact, the Chicago Mercantile and Chicago Board Options Exchange have been racing to roll out Bitcoin futures contracts that enable banks already signed up with the exchange to immediately begin trading in contracts.
But the thirst for bitcoin isn’t limited to large brokerages and banks. Mom & Pop investors, especially in South Korea and Japan, have direct access to storefront exchanges to help them into the marketplace. Japan has gone further to introduce regulatory legislation to enhance bitcoin’s entry as a legitimate currency. Most retail investors from the United States go to Coinbase that acts as a brokerage for digital currency much like a Charles Schwab. But as another indicator of the bitcoin frenzy, Coinbase has more customers than Schwab.

Is there a downside to riding the wave into the golden digital currency sunset? Right now, investing in bitcoin is akin to putting your money in a bank in the Old West. When someone robs the bank, the money rides off with the horses. Currently, there is no large regulatory body or insurer to guarantee the value of the currency like the FDIC, and perhaps worse, nobody to check if the exchanges are running correctly and accurately recording value. Add to this that sections of the bitcoin digital infrastructure have crashed, thereby deleting millions in value. Cybersecurity is also a concern, as bitcoin thieves have become incredibly adept at picking bitcoin pockets. As often heard on Wall Street as the answer on whether to invest in risky products, “Why yes, it’s very exciting to lose (thousands, millions, billions etc.,) of dollars very quickly.”