“Writing a description for this thing for general audiences is bloody hard.
There’s nothing to relate it to.”
— Bitcoin “founder” Satoshi Nakomoto

I must be a member of the general audience — because cryptocurrency truly is hard to understand.

But given its growing adoption, it seems like an important topic to try and tackle.

So here goes …

While there are several different cryptocurrencies, I will focus on the largest and most well-known, Bitcoin.

According to Wikipedia, “Bitcoin is a digital asset that uses cryptology to control its creation and management, rather than relying on central authorities.”

The domain name, Bitcoin.org was registered in 2008. Bitcoin’s creation is credited to “Satoshi Nakamoto,” a name used by a presumed pseudonymous person or persons.

So, the whole idea started out mysteriously, as efforts to find the real identity of Nakamoto have been unsuccessful. Bitcoin had its official launch on Jan. 3, 2009.

But Bitcoin clearly got off to a slow start. Wikipedia says its price history didn’t begin until May 2010 when someone named Laszlo Hanyecz made the first real-world transaction by buying two pizzas in Jacksonville, Florida, for 10,000 Bitcoins — worth about $40 at the time.

At more than $87,000 at the time of writing this column, that would be equal to more than $870 million. That pizza better have been awfully good!

Bitcoin’s value has been quite volatile as you can see from the nearby chart, just over $8,000 five years ago, hitting more than $65,000 four years later, then falling below $20,000 the next year, and recently topping $90,000 (up 20% in just a week).

Soaring values of anything attracts attention — and while estimates seem to vary, it is believed that around 50 million people own Bitcoin, with more than a half-million transactions daily.

Many well known tech leaders — including Elon Musk, Jack Dorsey and Brian Armstrong — are big fans of crypto.

And the recent introduction of spot bitcoin exchange traded fund (ETFs) in early 2024 have made it easier to trade in crypto.

But does that mean that it’s finally time to jump into the cyrptocurrency pool? If you’re considering investing in spot bitcoin EFT products, there are some key things you should know and consider first.

Here are some thoughts that Schwab recently shared:

• The value of even the most popular cryptocurrencies have been very volitile, the market isn’t very transparent, transactions are irreversible, consumer portections are minimal or nonexistent, and regulators still haven’t clarified their approach to regulating them.
• While the Securities & Exchange Commission approved these ETFs, the decision was made quite reluctantly and the approval was certainly not any kind of endorsement.
• Time will tell whether cryptocurrencies will become a new global currency. As long as bitcoin remains highly volatile and subject to hefty transaction fees, it seems likely to have only liminted use as a medium of exchange or store of value. (You certainly don’t see the U.S. dollar change in value like cryptocurrencies).
• The IRS currently treats crytocurrencies as property, not a currency, making crypto transactions taxable events. So, paying for a product or service with crypto can trigger a tax liability. (That pizza or car purchase may wind up being a lot more expensive than you thought).
• Fraud and cybercrime have caused cryptocurrencies to come under scrutiny from the Financial Crimes Enforcement Network, a bureau of the Treasury Department, especially given its use in money laundering. Bitcoin exchanges have been subject to outages — and a large-scale cyberattach could limit access in an emergency. 
• Theft or loss is another risk. A login ID and password is usually required to access a crypto exchange. If lost, hacked or stolen, access could be denied or lost. (There are legendary stories about people who forgot their passwords and lost all access to their accounts.

Warnings about investing in crypto have come from many sources.

One of the most famous, investor Warren Buffett, called it “rat poison squared,” saying “Stay away from it. It’s a mirage, basically. In terms of cryptocurrencies, I can say almost with certainty that they will come to a bad ending.”

Nobel Prize-winning economist and New York Times opinion columnist Paul Krugman noted, “What problem does this technology solve? What does it do that other, much cheaper and easier to use technologies can’t do just as well or better? I still haven’t heard a clear answer.”

Jamie Dimon, CEO of J.P. Morgan, said “Bitcoin is worse than tulip bulb,” referring to the 17th century Dutch tulip bulb market bubble.

Even Microsoft co-founder Bill Gates commented, “right now, cryptocurrencies are used for buying fentanyl and other drugs, so it is a rare technology that has caused deaths in a fairly direct way.”

And quite notably, Vanguard has no plans to lauch its own crypto-related products. The investment firm noted “when deciding what investment products to offer, we consider a range of factors, including whether we believe they have enduring investment merit and meet client needs. While the discussion about bitcoin and cryptocurrencies, in general, has increased recently, we do not currently believe that there is an appropriate role for them to play in long-term portfolios.”

When thinking about crypto, I keep thinking about how different it is to traditional investments like stocks, bonds and real estate.

Stocks are ownership shares of actual businesses; bonds are loans made by businesses or governments; and real estate is actual physical property — all of which are real things that are intended to make money.

When I think of crypto, I think about collectables like baseball cards or vintage cars, which are only profitable if someone else wants to pay you more than you paid.

I see a lot of similarity to the 17th-century Tulipmania in which speculation drove the value of tulip bulbs to extremes. The rarest bulbs traded for as much as six times the average person’s annual salary at the market peak.

Let’s just say that did not end well. I could be wrong, but certainly caution seems prudent.