Welcome to Di Iorio Wealth Management’s new Behind the Numbers blog.

Previously, we have distributed a quarterly newsletter under the same name, but in an effort to send out more regular and timely updates on various topics of interest, we have decided to move forward with a blog format.

We will choose topics for new blog posts based on news that relate to names in our portfolio, current trends that we find to be of interest, as well as on timely issues for different periods of the year. Some of our ideas for topics often come from our conversations with clients, so please feel free to reach out to us anytime if you would like to share an idea for a future post.

On that note, our first topic is something which we have had many questions and conversations with clients over the last few weeks, Bitcoin.

Our view on Bitcoin, and cryptocurrencies in general, is that they are a very interesting emerging trend, but also a very dangerous one. Trading at parity with the USD in early 2011, 1 Bitcoin reached a peak of value of $5000 USD on September 1st 2017. Last week, the value plummeted to $2900 following news of China cracking down on some Bitcoin exchanges, and as of the date of this post, it is currently trading at approximately $4000.

Bitcoin has been a divisive topic for some time, but this most recent meteoric rise and extreme volatility has created a lot of buzz around the topic. Lately, we have seen a number of big names in the financial industry weigh in with their own opinions on the cryptocurrency. Last week, the CEO of JPMorgan Chase Jamie Dimon, held nothing back and called Bitcoin “a fraud”. Even more recently, legendary hedge fund manager Ray Dalio said that Bitcoin, while not without some merits, is most certainly currently in a bubble.

In order to be considered a legitimate currency, something needs to be widely accepted, a store of value, and have a theoretically finite supply. The underlying technology behind Bitcoin is called “blockchain”, and thus far, has proven to be extremely secure. This means that Bitcoin is essentially impossible to counterfeit, and the current supply of 21 million Bitcoins therefore can be considered reliable and fulfills the scarcity requirement required of a currency.

However, it is the other two requirements where many, including us, find Bitcoin to be slightly lacking. As of now, Bitcoins are not widely accepted as a form of payment, and although the number of merchants or institutions accepting Bitcoin is growing fairly rapidly, there remains a long way to go. In terms of being a store of value, Bitcoin’s volatility clearly demonstrates the fact that the value associated with the cryptocurrency is wildly unstable.

In our view, Bitcoin and cryptocurrencies in general are an idea that may eventually take hold and truly become legitimate alternatives to traditional currencies. But until the main derivation of the value associated with them becomes rooted in something other than pure speculation, we will remain skeptical.

For more information feel free to refer to the article linked below on this topic.

https://www.bloomberg.com/view/articles/2017-09-18/what-last-week-tells-us-about-bitcoin

Thanks,

Di Iorio Wealth Management