Markets have been sliding lower all week with the Dow finishing Wednesday at 24,140.
Bitcoin and cryptocurrencies are the talk of the town (pretty much any town) with the digital currency smashing all manner of records and climbing to an intra-day high of over $19,000/1 coin this morning.
Wall street is taking notice and stocks that have exposure to blockchain technology are starting to really move. Look no further than Digital Power Corp. (DPW). This stock has gone from about $0.60 on 11/22 to a high of $5.10, yesterday. Shares are currently changing hands for $3.64.
If you haven’t heard of Bitcoin, or blockchain technology yet, you are not alone but you are part of an increasingly small minority. Here is a quick breakdown.
Bitcoin is a digital fiat currency. The “coins” are traded between people using the internet. The coins can be exchanged/swapped for Dollars, or Euros, or Lawnmowers (I’m not actually aware of a lawnmower you can buy with bitcoin, but if nobody else will, I will sell you mine). This is no different than other currencies in this regard. If you are traveling to Europe, you may exchange some dollars for Euros before your trip. In this case, if you were going to a store where they only accept Bitcoin, you would trade some dollars for Bitcoins before you go.
What is different about these digital currencies is how they are exchanged for goods and services. In the past, you would go to a bank to execute a large transaction. You do this because there is a chance that the other party may not deliver their end. The bank acts as an intermediary. Technology exists today that essentially removes the need for the bank. You can think of it as a publicly available escrow account function. Sort of like you can think of the internet as a publicly available communication service. There is no cost to the internet, but there is a cost for access to it and the technology to use it in the way that you desire. Blockchain is the foundational technology that makes Bitcoin possible… and desirable.
It is important to remember that Bitcoin is still a fiat currency. The only thing that gives it any value is that other people accept it as payment for good and services. The important thing to remember about fiat currencies (like the US Dollar) is that 100% of them have failed (with exception of the currently used currencies which simply haven’t failed yet). On a long enough timeline, all fiat currency will go to zero.
Shane Fleury, RICP® Eagle, Colorado