What Scares Us About Bitcoin and the “Wild” World of Digital Currency

We often think… just what is it about our microfarm that makes life on it so darn appealing?

What is it that makes us feel so good when we’re standing in the pasture on top of the hill?

We’ve thought about the freedom it represents… the reliable source of food… and the simple beauty of it all.

But as we penned the latest monthly issue of Manward Letter, we dusted off a quote that led us to a grand conclusion.

The simple line was muttered by Horace Kephart, a virtually unknown – but heroic – man. “I love the wilderness,” he said, “because there are no shams in it.”

Ah… and there it is.

Our farm – while certainly not wild – is no different. Amongst the bees, the sheep and the chickens… there are no shams.

SHARK ATTACK

If only that were true amid the wilderness that is Wall Street.

We got an inquiry this week that made our skin itch. A man wanted to talk to us about adding a sizable amount of bitcoin to our retirement account.

We wouldn’t believe it if we didn’t see it… but there was a shark swimming in our bucolic pasture.

To be sure, the idea of bitcoin is something that intrigues us – after all, we’re great champions of Liberty.

It’s a digital form of money that isn’t controlled by some sticky-fingered government. It’s off the radar, can’t be manipulated and doesn’t give a hoot whether its owner is in Kansas City or Kazakhstan.

It’s a currency the whole world can use.

Like communism and our decision to ask the truck driver’s girlfriend to prom (don’t ask)… putting some of the currency in our retirement account looks good on paper.

In reality, though, it ends with a big, fat black eye.

Again, our caller wasn’t merely trying to get us to invest in bitcoin – an idea we can’t knock, especially as the currency hits all-time highs this week.

No, he wanted us to make it the staple of our retirement savings.

Like most sharks eager for a meal, his timing was good. The alternative currency has more than tripled in price in the last year. Our caller smelled blood in the water… few investors can resist the allure of buying at the top.

price of bitcoin, digital currency

There’s no doubt he was eager to tell us a $5,000 investment in 2011 would now be worth $1.2 million.

What we suspect he’d have left out is all the folks who lost big money for nearly two years straight.

A SICKENING RIDE

But let’s be clear. Bitcoin is one of the most volatile assets on the planet.

Not only is it a standout in the land of the lawless (the fact that it’s not at the mercy of any government is a plus and a very big minus), but it’s quite susceptible to hacking.

Our research shows bitcoin is some five times more volatile than U.S. stocks.

Since 2012, the cryptocurrency has dropped 10% or more in a single day a whopping 38 times.

Stocks, on the other hand, have done it just once since 1957… just once.

In other words, if you can’t stomach the day-to-day moves of the Dow, bitcoin will have you spewing all over the place.

And then there’s that little notion that some bastardly thief could sneak into your account and suck up all of your “unhackable” digital currency.

Oh sure, bitcoins themselves are quite secure. It’s the online “banks” that store them that have proven quite vulnerable.

And unlike when your checking account becomes the victim of some nefarious spending… there’s no customer service agent who’s going to make it all better when the exchange that holds your bitcoin gets hacked.

You’re on your own.

There’s a long – and growing – list of investors who lost big money (millions even) after somebody got ahold of their untraceable bitcoins.

In just one example from 2014, bad guys got away with $460 million. The exchange later admitted that it faced some 150,000 hack attacks every single second.

Yes, we’ll stick with the sham-free world of our pasture.

A FEE-FOR-ALL

Finally, our caller wasn’t trying to transform our IRA out of the goodness of his heart.

Oh no, sharks have boat payments, too.

Adding bitcoins to our retirement account isn’t cheap. Some firms will charge a 15% setup fee… just to open the door for the new asset.

It’s a huge fee that would be wholly unacceptable with traditional assets. But with the excitement of bitcoin, plenty of folks are somehow willing to take the hit.

Don’t do it… at least not in your retirement account.

Again, bitcoin is highly volatile. Owning some is not investing, it’s gambling.

If you’re okay with that and can withstand potentially losing a sizable chunk – if not all – of your investment, have at it.

Like we said, there’s no doubt it’s treated folks well. But you have to get the timing right.

You have to be lucky.

And when it comes to our money – especially our retirement funds – we don’t believe in luck.

It’s a sham.

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