Let’s Not be Cryptic, Don’t Buy Cryptos

February 15, 2019

Bitcoin's price graph

The rise of Bitcoin in 2017 and 2018 took the world markets, investors and speculators by storm. It was a gold rush that harkened back to the actual 1800’s gold rush in Canada and the U.S. Even I fielded questions from clients about ‘getting in on this opportunity’. My counsel then, and my counsel now is still: Stay Out of Cryptocurrencies as an Asset Class. The latest QuadrigaCX cryptocurrency wallet exchange is just the latest scandal in this unregulated wild west environment.

What is Cryptocurrency and the Blockchain?

Cryptocurrency is simply a digital currency that is not regulated, supported, or controlled by governments or central banks, yet. These cryptocurrencies, such as Bitcoin, Litecoin, Ethereum and literally thousands of others, were made possible by its underlying technology the blockchain.  The blockchain is a non-centralized distributed ledger that secures the transactions on the network through advanced cryptography. Transactions on the network are not stored in a central repository and must be confirmed by the majority of the independent holders of the ledger in order for it to be verified. In this way, the blockchain is one of the most secure ways to ensure transactions are not able to be hacked or tampered with. Echelon’s white papers shed more light on Bitcoin basics.

Blockchain technology has been heavily invested in by some of the world’s largest companies and most advanced tech-companies for its possible use and implementation in everything from the food chain to contracts for large projects.

What is a Wallet and How can they be Dangerous for Investors?

You may have heard of the cryptocurrency exchange scandal involving one of Canada’s most prominent and largest cryptocurrency exchanges, QuadrigaCX. A cryptocurrency exchange is an independent bank-like company and trading platform for cryptocurrencies and even fiat currency. If you held Bitcoin, you can store it in a wallet in one of these platforms similar to your online banking wallet and convert it to USD or CAD; with one big caveat.

These exchanges are unregulated and unsupported by the banking industry’s depositor’s insurance and federal banking regulations. Quadriga’s CEO died in suspicious circumstances in December and it went unreported or verified until a month later, at which point it was revealed that the secure passwords for the company’s cryptocurrency vaults were lost with him, along with upwards of $180 million dollars worth of cryptocurrency. The ‘company’ was one person with a laptop. It had no office, no staff or sufficient infrastructure.

What is even more strange, is that the CEO’s death is being considered an ‘exit scam’ by some, whereby he faked his own death to run off with the money.

Use Your Wealth Sense

If an investment seems too good to be true, it usually is. Although there may be a future for investing in cryptocurrencies, the time is not now. The industry is simply too volatile as speculators drive prices up and down, and there are not enough safeguards for investors to be sure they are making a safe investment.

If you want exposure to this new asset class and technology, you probably already have it. Companies such as Facebook, Oracle, American Express and other global companies have invested heavily into the blockchain, counting on its unique innovation to cut costs in the administration of contracts and other uses.

Author Steve McBride, Investment Advisor, Echelon Wealth Partners looks forward to connecting with you about your future wealth management needs.

 

Disclaimers

This blog is solely the work of Steve McBride for the private information of his clients. Although this author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and this author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of this author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

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Source: 

https://www.forbes.com/sites/kenrapoza/2018/02/01/the-easiest-way-to-invest-in-blockchain-technologies/#d9837cc3b3d8

https://www.coindesk.com/quadrigacx-explainer

https://www.forbes.com/sites/michaeldelcastillo/2018/07/03/big-blockchain-the-50-largest-public-companies-exploring-blockchain/#ab09d9e2b5b2