With the hype of exploding Bitcoin prices in the media, “cryptocurrency” is the new buzz word on the street. I have expressed my opinion in my post in March. Since then the price of Bitcoin has more then doubled. In fact, other digital monies such as Ripple, Ethereum, LiteCoin have all increased in market capitalization.
So I have revisited Bitcoin and still maintained that cryptocurrency is a risky investment with high return potential. Also I have learned that Bitcoin network can only process 7 transactions per second, comparing to Visa’s 2000 to 7000 transactions per second. Sooner or later, a bottleneck will suffocate the Bitcoin network and users might abandon it en masse to a newer and more efficient cryptocurrency.
Which prompts me to realize that while Bitcoin has a hard limit of 21 million coins that can ever be “created”, there can be endless supply of other cryptocurrencies. The creator of Bitcoin had a brilliant idea to create a financial system based on limited supply of money because fiat/paper currencies always fail; however, I am afraid that his effort would proved futile because in the digital world, anything can be created in infinite (or close to) quantity.
The rise of Bitcoin and its peers reveals that the public are awakening to the fact that the global central banks’ policies are failing and the purchasing power of fiat currencies are declining. Years of cheap money have created bubbles of stocks, real estates, bonds while we continue to see staggering numbers of auto loans, mortgages, student loans, bankruptcies, etc…
So, would I buy any cryptocurrency? I would be cautious and approach it like any stock with the mentality that all the investments could be lost. Gold and silver, being physical asset, will also be the tool for wealth preservation and storage of value.
Here is an interesting article about Bitcoin: