We’ve officially entered the age of digital currency. Imagine the look on an ancient Greek merchant’s face if you tried to trade four Bitcoin for a jar of olive oil instead of handing over a few Venetian coins. It’s probably the same confused expression many of us had the first time we heard someone say they bought something with Bitcoin.
But what exactly is Bitcoin—and why aren’t we jumping on the bandwagon?
🤖 What Is Bitcoin?
Bitcoin is a form of digital currency (also known as cryptocurrency). It isn’t printed or minted. Instead, it exists entirely online and is decentralized—meaning no government or central bank controls it.
Every Bitcoin transaction is recorded on a public ledger called the blockchain. This technology keeps track of every transfer, verifying and validating them in chronological order.
🕹️ Who Controls It?
No one—and everyone. Since Bitcoin isn’t governed by a central authority, transactions are peer-to-peer, relying on users and miners around the world to maintain and secure the network.
🛠️ Where Does Bitcoin Come From?
Bitcoin is created through a process called mining. But instead of digging in the dirt, miners use powerful computers to solve complex cryptographic puzzles. These puzzles validate transactions on the Bitcoin network.
When a puzzle is solved:
- The miner earns new Bitcoin as a reward.
- Other transactions are verified in the process, maintaining the integrity of the blockchain.
📉 How Much Bitcoin Exists?
Bitcoin is limited to 21 million coins, ever. This scarcity is built into its code and is one reason many view it as “digital gold.”
💸 What’s It Worth?
Like any currency or commodity, Bitcoin’s value is driven by:
- Supply and demand
- Market sentiment
- Speculation
Its price can swing wildly—often rising or falling thousands of dollars within hours or days.
🤔 Should You Care?
That depends on your risk tolerance and financial goals.
Bitcoin appeals to:
- People comfortable with high volatility
- Those seeking alternatives to government-issued currency
- Investors worried about inflation or fiat currency devaluation
However, it’s not for everyone—especially if stability and long-term value are your priorities.
💼 Why Isn’t Bitcoin in Our Portfolio?
At our firm, we follow a value investing philosophy rooted in long-term fundamentals and a Margin of Safety approach (see Joey’s blog for more on that).
Bitcoin doesn’t produce earnings, pay dividends, or generate cash flow—key pillars of value investing. While it may serve as a speculative tool or hedge for some, it simply doesn’t align with the core strategy we use to protect and grow wealth for our clients.
