Bitcoin Booms, But Beware of a Bubble, Warns Investing Expert Jason Hartman
Bitcoin may have surged to a record high in value this past Saturday when its price was set at $3,169, shattering the previous high of the cyber currency’s value of $3,000 that was set in June.
But many experts still are wary of the alternative currency’s volatility, and they think its bubble could well burst, or that its price could fall heavily downward once again. Count among them Jason Hartman, the founder of the Platinum Properties Investors Network, who began investing in real estate while in college and has become a multi-millionaire since.
Hartman espouses investments in real estate over what he calls the “scams” of Wall Street and trading in metals such as gold and silver—and he thinks Bitcoin could soon join his list of scams, though he’s still deliberating. He hasn’t owned any of the cyber currency yet.
Hartman first learned about Bitcoin a few years ago while on a beach in Belize. He wasn’t really bumming around: He was speaking at an investments conference and networking with other conference attendees on the beach when “this really interesting, cagey guy” started explaining a newer form of currency to him.
“He explained Bitcoin, and I just couldn’t get it,” Hartman remembers. “It was $42—that’s what I learned about it.”
Hartman started following Bitcoin’s development and pricing, though, and “then I just watched it go way up.” He would learn that an unknown programmer—“they think it’s a Chinese guy”—invented Bitcoin as an open-source software for currency exchange in 2009. Under what’s described as a peer-to-peer system, transactions take place between users directly, without an intermediary. He transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.
Because it works without a central repository or single administrator, Bitcoin has been called the first decentralized digital currency.
Other cyber or “quick-dough” currencies, as Hartman calls them, have popped up since Bitcoin’s creation, including Litecoin and Ethereum.
Hartman says all of the newer currencies are “indicative of people becoming very suspicious of a fiat-money central banking model that has been around for a long, long time.” (The fiat-money model is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand, rather than the value of the material from which the money is made, according to Investopedia.)
Noting that 2013 was the 100th anniversary of one certain fiat model, the U.S. Federal Reserve, Hartman said the dollar lost about 90 percent of its value during the Fed’s first 100 years. “So, they’ve done a great job, right?” he says with a snicker. “If you took $100 in 1913, put it in a Folger’s coffee can and buried it in your back yard—hopefully, you held onto your property—and dug it up 100 years later, it would have been worth three or four dollars.”
People worldwide are losing faith in their governments and their central banks, which “are obviously in a very cozy relationship,” because of the general decline in currency values, Hartman says.
But, to the populace in general, “Money doesn’t matter, stuff matters,” Hartman adds.
“I always use that movie, ‘Castaway,’ with Tom Hanks. Why was Tom Hanks’ life tough on the island? Because he didn’t have any stuff. If he had more stuff, life would have been more convenient and more luxurious. So, stuff—or things—matter, but money doesn’t. The only question is, ‘How much stuff can you buy with it, how many goods and services?’”
Hartman is mindful that Bitcoin has had its share of bumps as well as rises during its history. In November of 2013, for example, it reached a then record peak of $979, but in 2015, its value dipped as low as $204 in August, because of continued uncertainty over the cyber currency’s future.
Online retailer overstock.com started accepting Bitcoin in 2014: “The Overstock CEO was being really challenging and antagonistic to Jeff Bezos of amazon.com, saying ‘they’re going to have to take Bitcoin, they’re being forced to because we’re taking it,’” Hartman says. Amazon continues not to accept Bitcoin, but other major retailers have joined Overstock in doing so, including Expedia, Virgin and Dish TV.
China banned Bitcoin but now accepts an alternative, Bitcoin cash, via its ViaBTC exchange. Central banks remain wary of the cyber currency, and the stock market doesn’t allow its use in trading.
“I think the powers that be will find a way to crush this,” Hartman says of Bitcoin. “They can just make a law against it like China did. They can make a law and say ‘Bitcoin is just like cocaine, you can’t trade it.’ Can you trade cocaine? No, not without going to prison … anything that competes against such a powerful, established interest is not something that I want to bet on.”
However, should the Securities and Exchange Commission ever allow the use of Bitcoin for stock market trades, “then it’s a problem here to stay, because a huge powerful interest called Wall Street will be behind it,” Hartman believes. But before then, because of the continuing uncertainty surrounding it, Bitcoin also “could be squashed like a cockroach.”
“I say that gold, silver, Bitcoin, any crypto currency, anything that challenges the most powerful institution in the world, the bankers of central banks” can be doomed to fail, Hartman says. He names such power principals in the banks as telecom giant Carlos Slim of Mexico, Bill Gates and Warren Buffet as those who will be wary of Bitcoin, as well as the Rothschild family. The Rothschilds are known as the richest family in the world with wide-ranging interests in financial services, real estate, mining, energy, mixed farming, winemaking and nonprofits.
“Some have estimated the Rothschild fortune to be worth 230 trillion dollars, with a ‘T,’ not a ‘B’ and certainly not an ‘M,’” Hartman says. “Just to give you a reference point: The total economy in one year in the United States of America is about $13 trillion, and the total economy of the planet earth in a year is about $60 trillion. That’s a lot of money.”
Hartman cites several advantages that real estate investments, particularly in rental property, can have over investments in Bitcoin, Wall Street or precious metals such as gold and silver.
Real estate, for example, is a better guard against theft, he says. “People can steal your dollars, they can steal your Bitcoins, they can steal your gold.” But, “It’s kind of hard to steal your income property. Those are kind of hard to move. It’s hard to steal the title. There are scams in real estate, of course, but those are so rare.”
Bitcoin also can be used for illicit activity, which is why it quickly became a favorite tool of the drug trade and other black-market activity. “That’s how it got started,” Hartman claims, noting that the federal government shut down a website called Silk Road “where you could hire a hit man and pay in Bitcoin.” And, “It was only like $1,000; it wasn’t that much. And back then, Bitcoin was only $42.”
Hartman compares investments in Bitcoin, precious metals and Wall Street to cyclical real estate markets. Cyclical real estate markets are those that can fluctuate widely up and down in price, while linear real estate markets are those whose prices stay steady over a period of years. Cyclical markets appear sexy and get faddish when their prices are booming and the area in particular is popular, but when their prices go down, investors can be left to cut some heavy losses.
Hartman and his Platinum Properties Investors Network favor linear-market investments over cyclical market investments for their real estate clients’ investments, “because I think it’s just a much more reliable and a much more conservative approach,” he says.
He remembers a return-on-investment or similar chart he saw a few years ago that compared Orange County, California real estate to the greater Kansas City area for an 18-year period.
“It was interesting, because it was Orange County, being a very cyclical market with big ups and big lows, versus Kansas City, which is one of these linear markets that just chugs along. As I recall from that old chart … it showed Kansas City, ‘boring’ Kansas City, beating ‘exciting’ Orange County, California.
“Orange County has like seven TV shows about it … ‘The OC,’ ‘Laguna Beach: The Real Orange County,’ ‘Newport Harbor: The Real Orange County,’ ‘The Real Housewives of Orange County’ … I don’t know if Kansas City, do they have any shows? The point here is that all these things that are like big talk, sexy, news-media attention—those aren’t the places to invest. They really are not.”
Hartman says his advice to investors is to “stay away from the sexy and the siren song,” which Bitcoin could well be before its soaring price bubble bursts—or fluctuates heavily downward again.