Confused About Bitcoin? A Financial Expert's Eye-Opening Take

What Is Bitcoin Really?

As a financial adviser with decades of experience, I've spent months diving into the world of Bitcoin and cryptocurrencies, only to find myself more confused than ever. While I learned about prominent figures like Sam Bankman-Fried and Zhao Changpeng, many of these so-called experts have faced legal troubles, with some even serving time in prison.

The Generational Divide

It seems that while younger generations may be profiting from Bitcoin, many older individuals are still relying on traditional investments, like money market funds and blue-chip stocks. However, this reliance could lead to a sense of security that might be shattered when the inevitable market corrections occur.

Key Misconceptions About Cryptocurrencies

Here are some essential facts to understand about cryptocurrencies:

1. Not Traditional Investments: Cryptocurrencies do not operate like conventional companies and lack regulation from the Securities and Exchange Commission.
2. Not Real Currencies: Unlike traditional currencies, which are issued by governments, cryptocurrencies are decentralized and not backed by any sovereign entity.
3. Manufactured by Networks: The creation of cryptocurrencies relies on massive computer networks, lacking a governing body to enforce rules or standards.

How Is Value Established?

Cryptocurrency value is more akin to securities than actual currency. For example, a Bitcoin is worth what buyers are willing to pay and sellers are willing to accept. Currently, there are approximately $20 billion Bitcoins available, valued at around $100,000 each, leading to a total market cap of $2 trillion.

The Downside of Cryptocurrency Ownership

The potential end for cryptocurrency ownership could be grim. As inexperienced investors panic during market downturns, many may rush to liquidate their holdings, often too late. The reality is that traditional investment vehicles, such as money market funds and blue-chip stocks, remain more stable and reliable for building wealth.

Michael McMahan is a resident of Gaston County.