Should Doctors Invest in Bitcoin?

Dennis G. Murray, MA

Disclosures

January 23, 2018

In This Article

Individual Investors Beware

For individual investors hoping to link owning bitcoin to an investment in blockchain technology, it doesn't quite work that way.

"It's important to understand that investing in bitcoin does not give you upside potential in blockchain adaptation to other assets," said Sheila Bair, former director of the Federal Deposit Insurance Corporation, in a recent article she wrote for Yahoo Finance.[7] "They are two different things."

With this in mind, investors should be very careful about seeking to buy shares of unknown companies that are purportedly investing in blockchain technology. Often, they aren't. Or, if they are, blockchain is a very small part of their overall business, and/or the company hasn't yet shown any revenue from blockchain technology.

Golden Opportunity or Fool's Gold?

The buzz around bitcoin has spurred the SEC to caution investors to ask lots of questions and "demand clear answers" before investing in bitcoin or any other type of cryptocurrency, such as Litecoin, Ethereum, Ripple, and Zcash, to name just a few. (Yahoo Finance currently tracks 110 cryptocurrencies.)

SEC Chairman Jay Clayton stated in December 2017, "Please also recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds."[8]

Given that clear warning, what do financial planners have to say about investing in cryptocurrencies like bitcoin? Are they okay with it, as long as their clients understand the risks?

Karen C. Altfest, PhD, a principal with Altfest Personal Wealth Management in New York City, doesn't see buying bitcoin as an acceptable part of a long-term investment strategy. As such, her firm strongly advises its clients against investing in bitcoin or other cryptocurrencies. "Bitcoin investing is too volatile, too speculative, and the very people who want to consider this don't know what's involved. Furthermore, it's difficult to assess a value or what it should sell for."

As Matthew Kelley, president of Gold Medal Waters, a Colorado-based financial advisory firm, points out, "People need to understand that bitcoin is a speculative play in a potential asset class that doesn't have an expected return, as a business would."

There's also a security issue, Altfest says. Digital keys can be lost—through a computer crash, for example—putting the investor's money at serious risk. Moreover, she explains, "the timestamps don't always ensure that the purchase was made or that a coin was redeemed in the order it suggests, and could be a doorway to fraud. In this system, there's no authority like a bank to appeal to when a dispute arises."

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