The meteoric rise in the price of Bitcoin, which represents more than half of the nearly $500 billion cryptocurrency market, has dominated headlines recently. But the price of Bitcoin and other cryptocurrencies has been extremely volatile due to significant uncertainties, including:
Bitcoin is the product of a technology called Blockchain. The original intent of Blockchain was to enable peer-to-peer digital payments that do not require a trusted third party, such as a financial institution. The problem Blockchain solves is assuring the recipient of a digital asset that the asset is wholly transferred (as opposed to copied and then transferred), thereby eliminating the possibility of digital double-spending. Blockchain thus removes the need for a third party to verify peer-to-peer digital transactions.
Blockchain is a digital ledger, or record, of transactions managed by a decentralized network of computers. For ledger entries to be successfully added to the Blockchain, all computers on the network must agree that the entries are accurate. If they all agree, the ledger entries are added and Bitcoin is issued as a payment. In this way, Bitcoin serves as an incentive to add valid transactions to the ledger, removing the need for a central trust authority.
Blockchain allows for the exchange of digital value directly and securely. Thus, the technology has many potential applications, including:
While Blockchain solves an important technology problem, the value of any given cryptocurrency remains highly uncertain. Cryptocurrencies such as Bitcoin, Ethereum and Litecoin have all exhibited significant price fluctuations due to these high levels of uncertainty.
In addition, cryptocurrencies are not common stocks of companies and do not trade on stock exchanges. Unlike an investment in a stock or mutual fund, there are no underlying fundamentals (cash flows, profits, tangible assets, etc.) to support the valuation. Edward Jones does not offer a way to purchase or hold bitcoin.
SEC Chairman Jay Clayton recently issued a statement on cryptocurrencies. Clayton warned:
Many investors are questioning whether Bitcoin and other cryptocurrencies are the latest asset bubble at risk of bursting. While no one knows for certain, we do know that the over 1600% price increase year-to-date surpasses many other previous bubbles, such as the dot-com bubble of the late 1990s, and the recent U.S. housing market bubble. While predicting the near-term, or even long-term, direction of Bitcoin is impossible, we believe the one certainty is that extreme volatility is likely to continue.
While we believe Blockchain technology has significant promise, we view any investments in cryptocurrencies as highly speculative. We recommend following time-tested investment principles and - not letting the "fear of missing out" negatively impact your long-term investment strategy.
Remember to always do your homework before deciding on any investment, including emerging technologies and markets. Working together with your financial advisor can help you to determine whether a particular investment is suitable for your portfolio.
This report does not take into account your particular investment profile and is not intended as an express recommendation to purchase, hold or sell particular securities, financial instruments or strategies. You should contact your Edward Jones Financial Advisor before acting upon any Edward Jones Research Rating referenced.
All investment decisions need to take into consideration individuals' unique circumstances such as risk tolerance, taxes, asset allocation and diversification.
This publication is based on information believed reliable but not guaranteed. The foregoing is for INFORMATION ONLY. Additional information is available on request. Past performance is no guarantee of future results.
Diversification does not guarantee a profit or protect against loss in declining markets.
Special risks are inherent to international investing including those related to currency fluctuations, foreign political and economic events.
Dividends can be increased, decreased or eliminated at any time without notice.
An index is not managed and is unavailable for direct investment.
Initial public offerings, known as IPOs, tend to attract a lot of investor interest – especially when the company is well-known. However, that excitement isn’t always matched by investment returns. What should you know before investing in an IPO?
From investments to insurance, we have the investment options to meet your needs.Learn more
Each week we provide a summary of market highlights and the latest economic news.Read more
Get instant quotes for your favorite companies and mutual funds.