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Why We Own Bitcoin

Sonja Haggert

GROWING UP, I remember my mother telling me to save because “you never know what can happen.”

Like a pandemic?

I reference my mother because she was ahead of her time in preparedness and quite savvy about money. She bought gold when it wasn’t popular—and I think she would have bought bitcoin. Why? For the same reasons that my husband and I decided to take the plunge.

To be sure, bitcoin itself has plunged in recent weeks, and it’s now down roughly 40% from its all-time high. But if anything, that should make potential buyers more enthusiastic, not less so. Yes, it’s entirely possible the price will drop further. But there’s one thing I’m confident about: While cryptocurrencies may continue to give owners a rollercoaster ride, they aren’t going to disappear entirely.

Why not? Our society is becoming cashless. If there’s one thing that the pandemic has shown us, it’s that we don’t need cash. Between credit cards and Venmo, I’m hard pressed to remember the last time I used cash.

Like me, my mother would have been horrified at the amount of debt countries are accumulating and would have shared my deep-seated fear that this will result in inflation. Neither of us would have been able to explain the money supply in textbook economic terms. But inflation has impacted my life very noticeably. A cruise, which was scheduled for 2020 and didn’t happen, just went up 7% in price, even though the company has been holding our deposit for more than a year. And just look where the price of gas has gone.

If you’re a retiree, you’ve had to be more aggressive. Savings accounts and certificates of deposit provide the most meager of returns, so you’d better have funds in the stock market. While you’re at it, you might dip your toes into alternative assets, including cryptocurrencies.

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Look at what has happened in just the past few years, and you can’t help but think this new commodity is for real. Fidelity Investments has a head of digital assets and a bitcoin division, and it’s looking to offer an exchange-traded bitcoin fund.  There are now thousands of bitcoin ATMs available. Major companies, such as Morgan Stanley and Goldman Sachs, are offering access to bitcoin and other cryptocurrencies. IBM, often seen as old and stodgy, has said it’s focused on blockchain and the industrial internet.

Wall Street has acknowledged the viability of cryptocurrencies with the listing of Coinbase on the exchange. Gary Gensler, the just confirmed chair of the Securities and Exchange Commission and a lecturer at MIT, taught a course on blockchain and money. You can watch his lecture on YouTube.

In looking at all of these developments in just a matter of a few years, it strikes me that a very small portion of our assets should be in cryptocurrency. We can buy in amounts as little as $100, because cryptocurrencies are available in fractional shares. Finally, can you get more legitimate than the IRS asking if you own cryptocurrencies on the front of the 1040 tax return?

Sonja Haggert is the author of Invest, Reinvest, Rest. You can learn more at SonjaHaggert.com. Follow her on Twitter @SonjaHaggert and check out her earlier articles.

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Philip Stein
Philip Stein
2 months ago

I think its important to recognize that bitcoin doesn’t represent ownership of anything tangible. It pays no dividends and there is no rational basis for valuing it.

Bitcoin’s notorious volatility makes it unlikely that it could be used as a currency anytime soon. Presently, the only groups using it as a currency seem to be ransomware hackers and drug dealers.

Be careful concluding that financial concerns offering such things as exchange-traded bitcoin funds and bitcoin ATMs is somehow an endorsement of bitcoin as an investment. This may just be another example of Wall Street offering products to meet investor demand.

Regarding the IRS asking if you own cryptocurrencies: The IRS wants to tax anything profitable to you. If you profit from casino gambling, you are expected to declare those winnings on your tax return and pay the tax. You wouldn’t conclude that the IRS has somehow legitimized casino gambling as an investment. I think the same goes for bitcoin.

If you wish to buy a small amount of bitcoin and enjoy the thrill of the ride, that’s fine. But please, regard your purchase as a speculation, not an investment.

David Powell
David Powell
2 months ago

A better name for Bitcoin and the rest would be digital lottery tickets. Lottery tickets are entertaining, but not an investment and certainly not a replacement for cash/currency until issued by a reasonably creditworthy government. China’s experimenting with a digital Renminbi so it could be the first if the U.S. and others keep dragging their feet.

Most of U.S. society already lives in a cashless way without cryptocurrency, using debit or credit cards, ACH transfers and things like that (PayPal, Zelle, Venmo, etc). I do see benefit to creating digital currency for the poorest in each country who have no access to banking. But unless it’s backed by the full faith and credit of a trustworthy government, the value is unmoored from any shared reality, and its uses speculative.

Bottom line: Bitcoin today is legalized gambling using blockchain technology.

Rick Connor
Rick Connor
2 months ago

Sonja, interesting article. Thanks very much for the link to Gensler’s lectures; I look forward to watching them. I still find it hard to get my head around crypto’s – the extreme volatility of a currency is hard for me to get past. I bought a very little as an experiment, but not sure what to do with it. Even the IRS is confused – they treat Crypto differently if it is used as a currency (say for payroll) or as an asset – LTCG taxes!

Kevin Mathews
Kevin Mathews
2 months ago

One huge downside: You have to have to account for capital gains and losses every time you make a transaction. Rememeber, crypto is an asset, not a currency.

Guest
Guest
2 months ago

While I certainly appreciate the rationale for owning Bitcoin and/or the other cryptos, I highly doubt any of them will find their way into my investment accounts. I’ve learned over the decades what works for me (a diversified equity portfolio) and am sticking with it. If a manager of one of the reputable mutual funds I own wants to dip their toe in crypto, that’s okay with me but I’m not interested in doing so. Good Luck.

John Yeigh
John Yeigh
2 months ago

My gen Z son convinced me to take a small position in Bitcoin and Ethereum last year. While crypto is certainly not for everyone, the good news is that adoption is growing and transactional security & fees have vastly improved. This is my only edgy investment (no ARK funds or Gamestop in my portfolio) and despite the volatility, I’m hanging on for the ride. If nothing else, crypto provides lots of fun daily discussion topics.

Last edited 2 months ago by John Yeigh

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