Did you make $20,000 today? Well, you could have. In fact, you could have made tons more money.

All you had to do was own some bitcoin, the cryptocurrency. As I write, bitcoin is up 47% for the month, jumping by several hundred dollars a day.

What idiot doesn’t want to own this asset?

Oh, that’s right. Me.

Because I don’t see it as an asset. Bitcoin is an imaginary thing with no official backing. There’s no person or entity that stands behind it. The currency is only as good as everyone who owns it or wants to own it.

If more people try to sell, the price will go down. With more buyers, the price goes up.

But here’s the rub. There’s no specific use for bitcoin.

Useless imaginary stores of value that we trade for goods and services? We’ve got that covered.

They’re called dollars, euros, yen, pounds, rubles, etc. Except those useless scraps and digital entries have something bitcoin doesn’t – a legally required purpose.

For every government-issued currency, there’s an entity (the government) that requires citizens use it to pay taxes and generally satisfy government debts, and citizens are required to accept it as payment for any debt. This is how nations protect their currency, by requiring its use on the threat of jail.

Bitcoin has no threat. If no one wants to buy, the currency stops trading and the price goes to zero.

Anyone who hates the idea of fiat money will find their perfect foe in cryptocurrencies. They are the essence of money based completely on faith.

That’s not to say bitcoin doesn’t have use.

The digital coin offers anonymity to buyers. And because it can be “withdrawn,” by using it to purchase actual currency or goods and services, anywhere in the world, bitcoin can travel across the globe without pesky customs officials or bankers observing the movement.

The secrecy and ease of transport make bitcoin very attractive… to criminals. That’s why purveyors of ransomware, the software that locks up your computer unless you pay up, demand payment in bitcoin and send you a tutorial on how to buy it.

But not all who use bitcoin travel on the dark side of life. There are many who love the idea of freedom from government control. That’s great, until something bad happens. Like digital theft, which has already occurred at Mt. Gox. Then oversight becomes a friend.

Beyond libertarians, there are legions of people buying bitcoin simply because it’s been going up. With the currency up several hundred percent since the first of the year, what’s not to love?

And now the currency is riding on a tailwind from other cryptocurrencies.

Bitcoin is called a coin, even though it doesn’t exist. Other cryptocurrencies are also called coins. Some, like ethereum and bitcoin, are meant to be used as currency. Others act like stock.

Companies issue coins in initial coin offerings (ICOs), and use the funds to grow their businesses. Most ICOs can only be purchased with bitcoin. In everything but name, most ICOs are stock offerings paid for in digital currency. And ICOs have raised more than $1 billion this year, with many more on the way.

The flood of ICOs has driven up the price of bitcoin as investors buy the cryptocurrency so they can buy the next new coin. A variety of firms, from software companies to strip clubs, have issued new coins.

But a warning sign is flashing. The SEC just announced that these ICOs look like stock offerings, and the issuers are using coins to bypass all of those annoying filings required when a company sells stock.

Hmm.

If the SEC closes the door on new ICOs simply ducking stock offering requirements, it could severely curtail the business. That would dent demand for bitcoin, and leave bitcoin owners relying on internet pirates, crooks, and the greater fool theory to keep the valuation at current lofty levels or even higher.

It’s possible. And I can see other uses, like people living in unstable nations such as Venezuela using bitcoin to move their funds out of harm’s way. But that seems like a shaky proposition.

It’s also possible that my initial question could change. It might be, “Did you lose $20,000 today? Well, you could have.”

Clearly I’m having a bit of fun with bitcoin, but I do have serious reservations about the currency.

In addition to those I’ve outlined here, I also wrote about this in June. I recognize some of the technology coming out of the space, such as blockchain and ethereum, could prove very useful in years to come.

But the currency? I’m not sold.

We’ll get the lowdown on bitcoin, ethereum, and cryptocurrencies in general at our fifth annual Irrational Economic Summit in October (Don’t miss your chance to save $500 on your ticket right here). Famed cryptocurrency expert Michael Terpin will join us, explaining more of the benefits and answering questions.

Who knows? I might even buy some bitcoin after that.

Rodney
Follow me on Twitter @RJHSDent

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Rodney Johnson
Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.