Cool Video: Short Take on Bitcoins

I stopped by Bloomberg near midday to talk with Vonnie Quinn and Shery Ahn.   We talked about many macro issues, but this clip that Bloomberg provided covers is the one topic that has overshadowed the big rally in US equities, tax reform and Matt Lauer: Bitcoins.

In this two minute clip, I mention that despite Bitcoins capturing the headlines, most Americans are not and cannot be involved.  Consider, I said, that the median household income in the US is $45-$50k a a year.  Can it really afford to buy a Bitcoin?  Yes, they don't have to buy a full coin, but as various reports show, many households are living paycheck to paycheck, and have little or no savings.   

I noted that there are around 300k Bitcoin transactions a day compared with millions of transactions on credit cards.  People, for the most part, are not using the cyber currencies to buy anything, and when they do, the company that they bought the goods or services from, faces something comparable to currency risk.  They most likely sell it for hard currency (aka real money).  

It is an interesting live experiment about how complicated markets are and the elusiveness of liquidity.  Think about settlement.  In equities it is two day settlement.  Some cyber-currencies can take a week.  When transaction fees in China were imposed, the volume fell sharply.    One difference between gambling and investing is risk management.  How does one manage risk in the cyber-currency space?  

I suggest, as I have before the the fear of missing out, and the appearance of easy money captures imaginations.  The media tries to speak to what people seem interested in, and builds a self-reinforcing echo chamber.  Main Street America has now heard of Bitcoins, but have the common sense to avoid it.  

Disclaimer