At the end of the year the whole internet goes into list-making mode with lists for best movies, best TV shows, best songs, biggest political events and so on. I couldn’t help getting into the spirit a bit myself, so here’s my “Top 3” list of questions that clients and listeners have asked my team at Keen Wealth in 2017:
- How much money do I need to retire?
- How do I need to adjust my portfolio because of what’s happening right now in the news?
- What are Bitcoin and blockchain? Should I start investing in them?
I think we’ve done a good job covering the first two questions in previous episodes this year. So on today’s show, I’m going to cross the final big question of 2017 off my list and talk about Bitcoin, blockchain, and cryptocurrencies – definitions, pros and cons, broader applications, and what moves, if any, you should consider as an investor.
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Insights from Today’s Podcast on Bitcoin and Blockchain
1. What is a cryptocurrency?
Cryptocurrencies have been big news this year. But they’ve been the subject of discussion long enough to earn a dictionary definition: digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Got all that?
Don’t worry, I didn’t find that definition very helpful either.
Essentially what we’re talking about is a currency that only exists in the online accounts (wallets) of its users. The value of that currency is completely dependent on what other cryptocurrency users will pay for it. There’s no central bank involved, no government involved (yet), and no gold or “full faith and credit of the U.S. government” backing up the value of a unit. Owners of a cryptocurrency can pay for goods and services using their cryptocurrency (for companies that accept it as payment) or, more commonly today, own their cryptocurrency as a speculative investment. Bitcoin is the most well-known cryptocurrency, but there are many others, such as Ether, each with their own networks and market values.
2. What is blockchain?
Bitcoin is a currency; blockchain is the technology that makes the currency work.
Each cryptocurrency transaction is verified and recorded on a digital ledger that is distributed across a large network of computers, called a blockchain. Imagine your trusty Excel spreadsheet, copied and stored for safekeeping, and any time you make a change to that spreadsheet, that change is instantly recorded in lockstep fashion within this scalable network of computers around the world. This blockchain system makes records of cryptocurrency transactions much more difficult for hackers to crack, providing an additional layer of data protection when using cryptocurrencies like Bitcoin.
But blockchain technology has applications that reach far beyond cryptocurrency transactions. Just as Bitcoin doesn’t need a bank to work, just about any information that’s stored on a blockchain has the potential to be updated and verified without the use of a central authority or intermediary. This opens up all sorts of opportunities for fast, efficient, and more reliable person-to-person transactions. For example, imagine selling your house directly to a buyer and taking care of all the government and financial red tape with a few clicks, taps, and swipes. Imagine streamlined escrow processes. Now imagine how blockchain can speed up other global business, like instant securities transactions.
And that’s just the start. Blockchain is such a powerful and flexible technology that its possibilities are limited only to what innovative computer programmers and businesses do with it.
3. I’m sold! How much Bitcoin should I buy?
This is all very exciting, and between the promise of the technology and the news about Bitcoin’s skyrocketing valuation, I can understand why people are asking me about adding Bitcoin and other cryptocurrencies to their portfolios.
But our recommendation at Keen Wealth is that most investors should hold off on buying cryptocurrencies.
As we’ve discussed many times on this podcast, the philosophies we stand by at Keen Wealth when managing our clients’ money are: control the controllable, accept volatility when it comes, diversify, and adapt when necessary. Bitcoin just doesn’t fit into this tried-and-true philosophy, at least not right now. Because of its highly speculative nature, the market value of cryptocurrencies will likely continue to fluctuate well beyond what we consider normal market volatility. Many of the colleagues and experts I spoke with at the recent Charles Schwab IMPACT® Conference thought there was a very real possibility of a “Bitcoin bubble.” And the US government is starting to question whether or not it needs to be regulating cryptocurrency offerings like traditional securities.
Blockchain, however, looks like it’s here to stay. And because of its rapid evolution, we may soon see more companies applying practical blockchain technology solutions to increase transparency, traceability and overall efficiency.
At Keen Wealth, we believe it’s our professional obligation to stay on top of innovations in finance that could affect our clients’ planning. Cryptocurrencies and blockchain technologies are quickly evolving. So if our opinion on investing in Bitcoin changes, you can be sure you’ll hear about it on the Keen On Retirement podcast in 2018.
Bill Keen on Bitcoin …
“Our recommendation at Keen Wealth is that most investors should hold off on buying cryptocurrencies.”
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.