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Should You "Invest" in Cryptocurrencies? by Nick Hodge

I don’t own any bitcoins.

Or ether (Ethereum).

Or Dogecoin, or Litecoin, or Peercoin, or Namecoin, or Ripple, or Primecoin, or Gridcoin, or Blackcoin, or Vertcoin, or any other of the literally hundreds of so-called cryptocurrencies that have now emerged.

It’s not that I missed the boat.

In fact, I recommended readers of my Wall Street’s Underground Profits newsletter begin buying Bitcoin back in 2013 (four years ago!). Following that advice would see your position up 159% at today’s Bitcoin price.

What you have now is a bunch of Johnny-come-latelys. And that’s dangerous.

Here’s what I said about Bitcoin back in 2013 to my paid readers:

Whether you love it, hate it, or haven’t heard of it... Bitcoin’s meteoric rise warrants your attention. Bitcoin is a digital currency that’s completely independent from central banks.

Like gold, there is only a finite amount of it available. Because of that, it is the first currency that could truly work on a universal level.

And people and governments the world over are taking notice.

This new, independent and rapidly growing currency functions like a giant, government-proof community. Instead of depending on a bank to store the money for you, you hold it yourself.

It is highly-encrypted and its peer-to-peer system means that no one can fudge the numbers. As a result, you never have to worry about your money being lost when overly risky banks make risky loans or bets on the market.

All that is still true.

What has changed is that it’s no longer just Bitcoin.

As of this writing there are over 900 cryptocurrencies available on the Internet. That changes things a bit. It makes them less scarce and, at least in my humble opinion, less valuable.

Bitcoin's exclusivity — like gold — is one of the primary things that originally made it valuable. Only a finite amount could be “mined”.

But where's the value if a new cryptocurrency pops up every day?

I have other concerns as well…

First, this recent edition of the cryptocraze is seeing buyers with little to no investment experience, which is the hallmark of a bubble. At the risk of sounding old, kids (20-somethings) are simply buying it to buy it.

For many of them, they have no experience with stocks or valuations or market cycles. Instead, these kids cut their teeth on digital culture and coinage, using Farmville cash to buy crypto-cows on Facebook as a childhood activity.

For them it’s a game… not an investment. And that’s also dangerous.

While the original mantra of Bitcoin was utility, security, and transparency… those “investing” in it today aren’t using it for anything. It’s simply being bought as a speculation.

So far this year over $180 million has been raised via what are being called Initial Coin Offerings. These are coin startups (remember there are 900 of them now!) that generate no revenue or value, but simply take your dollars in exchange for their crypto token.

For me, that’s like going to a random casino and exchanging your dollars for chips and holding those chips as an investment strategy.

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