The head-spinning fluctuations in the valuation of Bitcoin – and the mixed signals sent by governmental agencies – generate a degree of volatility that makes it difficult for many investors to decide whether to jump in or to avoid it like the plague. “If you’re confused, don’t feel bad. Many financial professionals are still figuring out what to make of Bitcoin themselves,” said Jason Labrum, founder and president of Labrum Wealth Management. “Unfortunately, almost anything connected with the future of Bitcoin is speculative right now.”
Still, there is no question the cryptocurrency is a fascinating development in the financial world, and one worth watching – even if with some skepticism, he added. Just remember three key points:
1. There is potential for a regulatory crackdown. Bitcoin has already been slammed by a crackdown from Chinese officials who have been severely restricting the use of cryptocurrencies. “That may not happen in the United States, but countries around the world are going to deal with cryptocurrency in their own way, and as they do, everyone could be affected,” Labrum pointed out. “Regulation could help give cryptocurrency more legitimacy – or it could undermine what many people like most about it.”
2. Bitcoins exist as software, not as physical currency. “Even though bitcoins are not illegal, they also are not legally recognized by governments as a currency,” the investment adviser noted. “The currency also can be traded without being tracked, thus raising the potential for illicit activity, such as money laundering.”
3. Cryptocurrency could represent a paradigm shift in the monetary system. “What seems odd now – a virtual system of money – might be routine in a decade or two,” according to Labrum. “Part of the reason Bitcoin has surged is speculation that perhaps one day digital money will become a legitimate global currency, replacing coin and paper as the new legal tender.”