- Clients may be asking about this “Bitcoin” they’ve been hearing about.
- Government officials and bankers around the world have voiced concerns about cryptocurrencies.
- Bitcoin value vaulted nearly $19,000 at one point in 2017.
The numbers have been flashy. Garish even.
The price of cryptocurrency Bitcoin rocketed through 2017 — from under $1,000 a unit to nearly $20,000 before pulling back — so it’s only natural a client might want in. It’s called FOMO: Fear of Missing Out.
Now they may want to know if they should invest, and how. There are different ways to get in the game, from creating a digital “wallet” at one of several sites and buying actual Bitcoin or other cryptocurrency to investing in futures on an exchange.
Every investor is different, but one thing is clear, authorities from Asia to FINRA want everyone to know cryptocurrency investing can be volatile and risky.
As the shady local warned a refugee couple in the classic film Casablanca, “I beg of you, Monsieur, watch yourself. Be on guard. This place is full of vultures, vultures everywhere, everywhere.” Then he stole their wallet.
“It is not a stable source of store value, and it doesn't constitute legal tender,” former Federal Reserve Chair Janet Yellen said at her final news conference in December. “It is a highly speculative asset, and the Fed doesn't really play any role, any regulatory role, with respect to Bitcoin …”
The Canadian Securities Administrators (the country’s collection of securities regulators) in December issued a joint statement reminding financial professionals and investors “of the inherent risks associated with products linked to cryptocurrencies, including futures contracts. While these contracts may be traded on regulated exchanges and may be cleared by regulated central counterparties, the fact remains that their high level of risk will not be suitable for all types of investors.”
For clients who are curious — and with all the press cryptocurrencies, especially Bitcoin, are getting, who wouldn’t be — FINRA produced a brief overview, Bitcoin Basics — 9 Things You Should Know About the Digital Currency. The overview mentions things such as “Bitcoin supply is not controlled by any central government,” “Bitcoin is volatile,” “Bitcoin can be stolen,” and “Bitcoin’s origins are mysterious.”
And one more thing, FINRA notes, Bitcoin isn’t the only game in town when it comes to cryptocurrencies. There are more than a thousand.
But when has a rapidly rising investment where seemingly everyone was making money ever gone wrong? Vitor Constancio, vice-president of the European Central Bank, in September likened Bitcoin to a “tulip,” referencing the Dutch tulip bulb bubble of 1637 when, after years of speculative trading and rising prices, people came to realize … they’re just flowers.
Things to Consider:
- Lots of people are talking about cryptocurrencies like Bitcoin. How much do they really know?
- Many things have soared in value only to fall back to earth. Remember Beanie Babies?
- Clients look to you to help them develop a disciplined investment strategy.
For clients who want to know more:
Consumer Fraud Protection Bureau: What Are Virtual Currencies and What Should I Know if I’m Interested in Using One?
FINRA: Bitcoin Basics — 9 Things You Should Know About the Digital Currency
Investopedia: What is Bitcoin?
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