Cryptocurrency: To Buy or Not To Buy? That is the Question.

Investment instruments such as stocks, bonds and their derivatives are anchored to their ruling laws, their explanatory prospectus’, and direct or indirect sources of guarantee or collateral. All elements of risk are measured and determined by these basic elements or characteristics. Investors have the very important task of measuring risk and analyzing fundamental and technical data to determine the true value of each investment instrument. Layers and layers or rules and regulations exists to prevent investors loss of capital. Misinformation and all forms of hanky panky are prosecuted and called white collar crimes. In spite of this minefield attempting control the schemes they keep on coming. Would like to buy a lot of land on the Moon? Maybe a moon rock?

The most secure investment papers are collateralized bonds with triple rating and a long history of success and short term Treasury bonds.

An example of an investment you may be familiar with is how you mortgaged your home, shall we say with a 30 year mortgage at 5% annual interest. Millions of people have used this investment route to purchase their homes. The bank holds the loan collateralized by the actual/ real life house. In come the investment bankers, who are more creative than Dali and Picasso combined, and they “pool” thousands of these mortgages which, are collagenized by your house and mine, and create a new investment vehicle which is a CMO, a Collateralized Mortgage Obligation which people can purchase a maybe $5000 bonds @ 3% annual interest for thirty years. Another investment banker cooks up another layer of millions of dollars of mortgage bonds without the collateral. These are risky derivatives. The cost of the bond would be lower and the yield higher to cushion the greater risk. Again, these investment instruments are regulated and under the watchful eye of the Feds.

Stocks, which have a higher risk have their own derivative shadow investment products called Options. These trade on an exchange, are very volatile and you don’t purchase anything but the right to place bets on your opinion on how a stock or bond will act within the marketplace. These are nothing more or less than bets based on knowledge the investor has acquired and is willing to bet his/her money on it. Options trading can be very lucrative and is very much watched and regulated, as it should be.

I finally decided to give cryptocurrency a closer look and this is what I found and how I found it. My research compels me to trail this investment product from its inception until just moments ago. I like definition, clear and simple and to the point. I demand to know where the principal is going in and at the end where it is coming from.. Surprises ahead.

Why the Father of Bitcoin Is Nowhere to be Found. by Rebecca Balgude for Robb Report.

In 2008, Satoshi Nakamoto appeared out the ether to establish the world’s first cryptocurrency. Then he disappeared just as abruptly. He is the ” So called father of Bitcoin.” Then on April 23, 2011, he sent a farewell email to a fellow Bitcoin developer: “I’ve moved on to other things” he wrote, assuring that the future of Bitcoins was ” in good hands”. He has not been heard from since. He is said to own over 1 million Bitcoins with the current value hovering somewhere around $60 billion.

This tells me that a very smart individual thought of and developed a new investment. He calls it a electronic currency, a cryptocurrency and names his investment product Bitcoin. People buy, in cash, a electronic file with their name on it. Mr. Nakamoto has your cash and you have your unregulated, uncollateralized electronic file. Hey Christies just auctioned and electronic piece of art for about $60MM. So this is happening and will continue to. My problem is the deep, deep feeling that Bitcoin is responding to the market and the market is an ingrate that sometimes goes bust and you will be left holding the bag with no chair to sit on. Yes, the appreciation of the Bitcoin is astronomical but my analytical mind always ruins my fun and tells me that this cryptocurrency is not a currency and that it really, really reminds me the pyramid schemes from years back. A bunch of happy people make a bunch of money and the last one’s in lose everything when the pyramid self destroys. So my research continued and this is what I found:

Is Bitcoin Similar to a Pyramid Scam?

Nassim Taleb, who compares the most popular cryptocurrency to a pyramid scam scheme. Taleb is famous for his 2007 book ‘The Black Swan”, where he predicted a possible pandemic, which is already happening. Now the essayist and researcher also gave his point of view on Bitcoin, and its not encouraging at all.

Naaim Taleb assured that Bitcoin is too volatile to be an effective currency and is not a safe protection against inflation. “Basically there is no connection between inflation and Bitcoin. None. I mean, you can have hyperinflation and Bitcoin going zero. There is no connection between the two, said the economist in an interview with CNBC.

The specialist in predicting possible catastrophe’s known as ‘black swans’, pointed out that Bitcoin has characteristics similar to those of the Ponzi Scheme, a type of pyramid fraud by taking money from investors and disguising the scam by channeling returns. ” Something that moves 5% per day, 20% in a month, up or down, cannot be a currency. It’s something else.” Talib said, calling Bitcoin ” a trick” and and a “game.” (www.entrepreneur.com)

Now that I know what this cryptocurrency really is, I like it better than the “it’s a serious investment. Mr. Nakamoto has played us all and is sitting happy with billions of dollars while we proudly contemplate how our electronic file is worth more today than yesterday. Would I invest in it? Never the rent money. Options are more fun. I really don’t know. But, my lifelong slogan has been “When in doubt NO!” Thanks for reading.