I have a pretty good track record of recognizing lucrative investment opportunities long after they've passed. Chrysler, Microsoft, Apple, Google, Amazon and numerous dotcoms that have bloomed through the years come to mind. I failed to get in on the early days of those ventures, among others, and the enormous profits they generated.
Now, with the benefit of experience and — let's call it "seasoning" — I think I have spotted the next blockbuster I will fail to exploit: Bitcoin.
I have seen enough references to Bitcoin lately that my curiosity was piqued and I did a little research. The most striking fact I uncovered was that in 2011 one Bitcoin was worth about $9. Last month, the price had risen to over $1,200. Quotes that I found on Jan. 3 ranged from $815 to $870. Wow. What the irrational exuberance is going on here? That prompted me to silently recite the Lament of the Indecisive Investor: If I had bought (fill in the blank) in (another blank) it would now be worth (blankety, blankety, blank). Sigh.
The problem I am having with Bitcoins is that I can't figure out what they are. I know a Bitcoin is a "virtual currency," but that term only leaves one of those cartoon balloons above my head, and it's empty. It's a concept I can't seem to grasp, like flight. Common sense tells me that machines that weigh hundreds of tons can't possibly fly, but I work in a place where I see passenger jets take off from and descend to Albany International Airport, so far successfully, many times a day. So I have to accept the reality of flight. But not Bitcoins.
As far as I can tell, Bitcoins, which are actually encrypted algorithms, are like gold bars or diamonds but without a physical existence. They carry a value that is assigned according to what people believe them to be worth, as do gold and diamonds.
Although this is obviously crazy, I don't have a problem with it; my acceptance of something is not necessarily conditional on understanding it. I tend to look at life from an absurdist point of view, and saying that diamonds or gold, which make attractive jewelry but have no intrinsic worth, are valuable is, to me, absurd.
But maybe not as absurd as Bitcoins, which don't even exist. People who embrace the Bitcoin concept hope that they will be a safe haven in the event of a worldwide financial meltdown ... I guess. But if I wanted to pay my local bartender in Bitcoins, I would have to, I believe, take my computer to the bar and make some kind of electronic transfer that she — or someone — would have to approve — somehow — and accept — eventually.
It's a lot more confusing and time-consuming than slapping down a $20 bill. And leaving a Bitcoin tip would probably get me banned for life.
I'd have no trouble buying drugs, though. The whole Bitcoin phenomenon really got started when they became the currency of choice on a website called Silk Road, since shut down by the FBI, that was an online drug marketplace. Buyers used Bitcoins because they can't be lost in transit like cash and because they assure at least an added layer of anonymity, which credit cards or checks do not.
It is Bitcoins' potential use for nefarious purposes — and the bureaucrats' natural unease with anything that is not regulated — that has triggered alarm in some quarters. My colleague Brian Nearing recently reported that the state Department of Financial Services, for example, is investigating Bitcoins and their possible use for laundering money. Such concern is, if nothing else, at least a sign that the Bitcoin phenomenon is being taken seriously by mainstream financial regulators, which imparts a kind of legitimacy and will help boost the perceived value of Bitcoins.
Not with me, though. I follow Warren Buffett's investing advice and only put money in companies that make real and proven products I understand, like cigarettes, liquor, napalm, handcuffs, methadone, concertina wire and small arms ammunition. These are the unspectacular but steady earners that will never fall out of favor with certain consumers or their successors. Bitcoins just don't measure up.
Bitcoins are a bubble waiting to burst. They have already passed their peak and I missed the boat again. But that's OK. The Bitcoin waters are too deep and muddied for me to understand, except for the inevitable real losses and imaginary gains.