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What do I think of Bitcoin? Part I

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Image used under license from Shutterstock.com

In light of recent events, it’s worth reexamining this series I originally posted November 15, 2017.

I’ve been asked the question “What do you think of Bitcoin,” as much as any question I’ve received about my website www.yoursurvivalguy.com or my series on the S&P 500.

I’ve been in the weeds studying bitcoin (the currency) and Bitcoin (blockchain tech) and I’ll tell you, I haven’t had that “Aha!” religious-like moment experienced by, I’m told, its cult of followers.

Count me in the “still skeptical” camp, with a distinction. Bitcoin, the technology, or blockchain, is here to stay (more on that later).

In terms of a currency, bitcoin, may be the store of value its followers believe it to be. At the end of the day, gold—known for its store of value principles—is valued based on investor sentiment.

Sentiment is based on the unknown, such as “What’s the deal with North Korea?” or “Is the stock market setting up for another crash?” and/or “What will the Federal Reserve do with interest rates?”

Gold fluctuates through the years on fear and greed just like any other asset. Because of its reputation as a store of value, gold has a reputation of behaving well in times of trouble.

Reputation says a lot about worth. As a “store” of value, bitcoin the currency is trading on its reputation. A lot of bitcoiners respect its reputation, and that network is alive and well.

How high can bitcoin go? Anyone who’s familiar with Metcalfe’s Law appreciates the power of the network—its value is proportional to the square of the number of connected users to the system or (N2).

This little cryptocurrency has a market-cap of $110 billion based on this morning’s quote of $7,128 per, with 16 million some odd coins in “circulation” and a limit set at 21 million. Then what? One question, how will the miners get paid if there’s no reward? Will they have an incentive to nurture the network?

I can appreciate how a Facebook gets followers or how Uber scales. But with bitcoin I get no “friends,” or a ticket to ride, or as an income investor—no dividend. I just sit around and hope there’s long-term intrinsic value—that’s too expensive for my taste.

For now, I’ll let bitcoin owners worry about ethereum, ubiq, bitcoin cash, etc., until at least I can tell you I’m a true believer just like them.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com