VIDEO: Musk, Dogecoin, and Other Tales from the Crypt

Welcome to my special video presentation on cryptocurrency investing. The article below is a condensed transcript of my remarks.

Well, we got some startling news on Tuesday: Elon Musk, CEO and founder of electric vehicle maker Tesla (NSDQ: TSLA), said his company will accept Dogecoin (DOGE) as payment for merchandise on a test basis.

The cryptocurrency Dogecoin was launched in 2013, as a parody of Bitcoin (BTC). Doge is Japanese slang for “dog.” Dogecoin tokens feature the image of a Shiba Inu dog, an Internet meme.

Dogecoin has no mainstream commercial applications. It’s used for tipping online. Interest in Dogecoin grew through social media. On Tuesday, Dogecoin jumped about 20% on the news from Musk and its value currently hovers at $25 billion, for an “altcoin” that started as a joke. Something is wrong here.

To be sure, cryptocurrency is an investment phenomenon that can’t be ignored. However, I’ll show you the smart way to profit from the crypto craze.

The celebrity CEO…

Wall Street is perpetually preoccupied with the antics of Elon Musk, who is currently worth about $297 billion (that’s not a typo), which makes him the wealthiest person on the planet.

Musk, whose face graces the latest cover of Time magazine as “2021 Person of the Year,” is an outspoken cryptocurrency fan. (He has dubbed himself “The Dogefather.”) His tweets have the power to dramatically move crypto, and the broader markets, sharply up and down.

The financial markets are awash in liquidity, thanks to unprecedented fiscal and monetary stimulus. Investors have been eager to put that cash to work. Perhaps too eager.

We’re seeing a rush into exotic (and sometimes toxic) assets, driven by the Fear Of Missing Out, aka FOMO. Rampant speculation often indicates a market top.

A lot of fawning media coverage has been devoted to cryptocurrencies. They make for a colorful narrative. However, this asset class, which typically is volatile anyway, has been on a roller coaster lately, after China cracked down on crypto mining.

On September 24, China announced a blanket ban on all cryptocurrency transactions and mining. The autocrats in Beijing prefer to keep a tight rein on the country’s financial markets, and cryptocurrency poses too much of a wild card for regulators.

Bitcoin has risen from $5,000 at the end of 2018 to about $47,000 as of December 14, down 18% from its price of about $57,000 on December 3 (see chart).

Unless you live in a cave, you know that Bitcoin is a virtual, decentralized currency that circumvents government regulation. Bitcoin’s adherents aim to make it a universal electronic currency. Bitcoin is the pioneer and best known among thousands of cryptocurrency alternatives that include major competitors Ethereum (ETH) and Litecoin (LTC).

Bitcoin is both a digital currency and a payment system. It’s often compared to gold as a store of value that provides a crisis hedge. To get Bitcoins, you must first set up a digital “wallet.” A digital wallet is an app that stores many of the financial items you’d carry in a conventional physical wallet, but electronically. You then pay a willing seller the necessary hard currency to transfer the coins into that wallet.

Bitcoin was invented in 2008 by one or more computer programmers using the pseudonym Satoshi Nakamoto, identity still unknown. A growing number and variety of U.S. merchants are starting to accept Bitcoins as payment, which dovetails with the overall trend toward cashless mobile payment systems.

Tesla announced earlier this year that it had bought $1.5 billion worth of Bitcoin. Musk also said that his company would start accepting Bitcoin as a payment method for its products.

Musk has gone back and forth as to whether his company would accept Bitcoin. At one point, he withdrew that acceptance, based on environmental concerns due to the enormous amounts of energy “crypto-mining” consumes. Musk has since embraced Bitcoin again.

Adherents of crypto praise its anonymity, transaction speed, versatility, and security. Critics say Bitcoin, Dogecoin and other cryptocurrencies lack intrinsic value; they have value only because people agree that they have value. Crypto’s fiercest detractors denounce it as a Ponzi scheme. What’s more, governments could decide to ban cryptocurrencies (as China recently did), to protect their own traditional fiat currencies.

A safer way to play crypto…

If you’re risk averse and Bitcoin and its altcoin counterparts seem too volatile and dangerous for you, consider investing in crypto via blockchains. They represent a picks-and-shovels play on the trend.

According to research group Statista, worldwide spending on blockchain solutions is expected to grow from $1.5 billion in 2018 to an estimated $14.4 billion by 2023.

Every cryptocurrency is supposed to be linked to a blockchain, which is a distributed computer-generated database of all transactions that have ever taken place in the currency.

Whenever a crypto token is used, a record of the transaction gets added to an existing database that is distributed to all major “miners,” or creators of the database. These miners generally have very large computers that use highly sophisticated algorithms to add transactions to the blockchain. The same miners use even more sophisticated algorithms to create new tokens.

Blockchains have a multitude of real-world commercial uses and as such, they represent a dynamic growth area within the technology sector. The lightning-fast computing power of blockchains makes them useful for many tasks unrelated to crypto, notably those performed within the Internet of Things.

Blockchains have the potential to add to the growth of many established tech companies, especially chipmakers and systems integrators. Blockchains are proving their tangible worth as productivity-enhancing tools within the corporate enterprise.

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