Bitcoin was created in 2009 by an anonymous person or group under the pseudonym Satoshi Nakamoto.  In response to the 2007 Financial crisis, when banks were losing their depositors millions of dollars and the U.S. government began printing money hand over fist to bail out the U.S. economy, Satoshi submitted a white paper outlining a digital currency that could be used over the internet. Satoshi wanted to create a digital currency that would:

1.     Be outside any one government’s control or manipulation. 

2.     Be accessible to everyone who had access to the internet.

3.     Enable peer-to-peer transactions, (meaning a transaction that would not need a bank or third party to move the currency). 

Satoshi figured out how to use blockchain technology to create this digital currency, and alas, Bitcoin was born. 

Bitcoin is the oldest and most valuable cryptocurrency on the market.  As of this writing, one bitcoin is worth around USD 54,000. The first bitcoin transaction was in 2010 when someone bought two Papa John Pizzas for $41.00 using 10,000 bitcoins. Today 10,000 bitcoins would be worth over 500 million dollars!  

 What gives Bitcoin value?

Let us think about our U.S. dollar for a moment.  In 1970, Nixon removed our dollar from the gold standard, and the dollar became backed by nothing other than the “full faith and credit of the U.S. Government.”  The United States Dollar,(USD), is a fiat currency because it is tied to nothing tangible, like gold, for its value. Therefore, we must have faith in our government to keep our dollar stable and valuable.  (The government has much power to keep our dollar stable by taxing authority and monetary policies.).

This same faith that we have in our government is the same faith that essentially gives bitcoin value.  If we believe bitcoin has a purpose, such as a store of value or as a way to buy goods and services over the internet, then bitcoin has value. Bitcoin’s value also increases when this faith is expressed by large companies investing or accepting bitcoin such as JP Morgan and Nordstrom. However, bitcoin does not have a big federal government to keep it stable, so it is a very volatile currency.  Because its value hinges on who believes in it, prominent personalities such as Elon Musk, can hugely move the value.  So, for the time being, bitcoin will stay volatile until we see it become more mainstream. In a nutshell, Bitcoin gets its value from good old-fashioned "Demand"-the more people demand it, the more valuable it becomes.  

How to Buy Bitcoin or Other Cryptocurrencies 

The first thing to do is get prepared.  Read up on avoiding being scammed and be ready for the volatile ride of price movements. (For more in-depth information on how to buy crypto safely, click this link for a good tutorial from Crypto Casey:  https://www.youtube.com/watch?v=sEtj34VMClU)

Here are steps to take before buying bitcoin or any cryptocurrency:

Step 1- Find a reputable exchange to exchange dollars for crypto.  Here is a safe link for accessing the Coinbase exchange: https://www.coinbase.com/join/57605a3   

Step 2- Set up a funding account by either connecting a bank account, debit account, or wire transfer. Setting up a bank account works best for buying and selling crypto.  

Step 3: After buying, You will receive a private key.  Your private key is a secret, alphanumeric number that gives access to your cryptocurrency on the blockchain.  Your private key will stay on the exchange where you bought your crypto, so be sure to read step 4 on what to do next. 

Step 4-Do not leave your private key on the exchange.  Exchanges have been hacked and bitcoin stolen.  Instead, set up a digital wallet. Digital wallets come in two forms: Hot or Cold. A hot wallet is a digital file stored on your computer, and you keep your private key here.  A cold wallet is a USB-type device where you download your private key off the internet. A cold wallet is the safest way to keep your crypto.

In the past few years, bitcoin has seen many adopters.  Bitcoin has been referred to as digital gold because there will only be 21 million bitcoins in circulation. Like gold, this scarcity can make bitcoin a good store of value and hedge against inflation.

If you want to know if bitcoin is a good idea for your portfolio, please contact me for a valuable conversation about your financial future.

Marathon Wealth Management, LLC is an Investment Advisor registered with the State of Washington. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy, or the completeness of, any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions.