The Wisdom of Old or Not-So-Old Age

While Bankrate no longer provides the most accurate and comprehensive information on bank rates (that distinction now belongs to BestCashCow or RatesAndInfo.com), they do sometimes produce interesting surveys.

Their latest survey indicated that 5% of those aged 18 to 37 say bitcoin is the best place to put money they won’t need for 10 years or more, whereas only 1.2% of those aged 38 to 53 favor it for long term savings, and less than 1% of those aged 54 to 72 do.

I myself am not so old, though I do fall into the bracket of people aged 38 to 53. I cannot imagine what planet the 1.2% of my age cohort would trust bitcoin or any cryptocurrency, and I am startled that so many people who are younger would entrust their savings to these instruments.

While Bitcoin has fallen this year, it hasn’t collapsed completely as many - including myself – had predicted. It, however, remains an artificial asset, a mirage, and one where $7,000 per coin has no more fundamental value than $0.32.

With age comes the reality that a crisis in confidence in an instrument can cause pandemonium, confusion and widespread selling of assets representing a claim on fairly predictable future cash flows. History books will tell you that this has happened in 1929 and 1987. Even in the youngest age bracket, many can remember the internet crash of 2000-01 and the financial crisis of 2008-09. While fundamental strong assets were often devastated, fake assets (those assets not fundamentally backed by future cash flows) disappeared (eg., Enron collapsed in the aftermath of the internet crash).

To believe that bitcoin represents a store of value is to ignore those lessons and to bet on a constant and indefinite faith in a mirage that ignores fundamentals. It also assumes that there will be no hiccups in broader financial markets that would cause people to lift the sheets and look underneath.

Investors should stick with savings and money market accounts, CDs, bonds and equities as major components of their financial portfolios. Not bitcoin.