Bitcoin has been getting a ton of attention lately, and I have to admit that I am very interested in the concept.
The idea of a digital currency that could be easily transferred anywhere, without having to worry about exchange rates is pretty cool. The idea of a currency that is not affiliated with any specific country is also very interesting.
Perhaps the most interesting aspect is that this could be the ground floor level of the next mega-boom investment vehicle. This could be our opportunity to turn a couple grand into millions, just like Wal-Mart, Microsoft, and Google. It could also be a total bust.
Avi Mizrahi from Forex Magnates wrote a pretty interesting piece on Bitcoin last week where he interviewed Ron Cao. Cao’s firm recently made a big investment in Bitcoin and he gave his perspective on the long and short-term future of the currency.
Here is how Mr. Cao described the investment:
The research into Bitcoin was mainly conducted by reading a lot about digital currencies, and meeting with knowledgeable people in this matter from China and around the world until they came to believe with a high degree of certainty that it will play a role in disrupting financial services.
Mizrahi points out that Cao doesn’t consider Bitcoin a currency:
Interestingly, Mr. Cao prefers to refer to Bitcoin as a “digital commodity” or an asset, not a currency as he believes this term better explains the nature of it. He likens Bitcoin to a commodity, such as gold, because it has intrinsic value and a finite amount. Therefore, it is possible no specific central exchange will dominate as liquidity and size do not matter, and about three players will share each market.
That’s interesting. The comparison to gold seems to make the most sense to me as well. Cao continued by addressing why he felt that investing in a Bitcoin exchange was the best way to get exposure:
Mr. Cao answered that they have invested much thought as how to exactly have a Bitcoin “play”, as they are strategic long- term equity investors, and an exchange has a chance to become a big and profitable business. Other sectors like digital wallets are not there just yet, but maybe down the road that will change. Additionally, in BTC China they have found a team they can trust, and a vision to focus on technology and security.
From there, Cao began to sepculate on what he saw as the most likely future for Bitcoin:
Thinking about Bitcoin itself, Mr. Cao said the interest is mostly speculative in the short term, as it still only has very limited use, and the high price has a feeling of a bubble right now. It is hard for him to say in this early stage what the future for Bitcoin is, but Mr. Cao believes that in five years or even sooner, Bitcoin will be a part of many micro payment solutions, which will be the first sector to adopt Bitcoin-use as it is designed to be very divisible to tiny fractions.
While Bitcoin is a very interesting story, it will be helpful to keep in mind that no one can predict the future, and nothing is guaranteed. Bitcoin could become a hugely successful….but it could also disappear six months from now.
This Cao guy is probably pretty smart and what he says makes sense. Of course, he’s just a dude being interviewed on the Internet, and no one should invest real money based on something they read on the Internet. I guess the point is that whether you decide to trade Bitcoin or not, you should be just as cautious as you would be with anything else you might trade.