Bitcoin and cryptocurrency: Long-term potential or short-term buzz

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What is bitcoin?

Bitcoin is the product of a technology called Blockchain. The original intent of Blockchain was to enable peer-to-peer digital payments that do not require a trusted third party, such as a financial institution. The problem Blockchain solves is assuring the recipient of a digital asset that is wholly transferred (as opposed to copied and then transferred), eliminating the possibility of digital double-spending. Blockchain removes the need for a third party to verify peer-to-peer digital transactions.

How blockchain works

Blockchain is a digital ledger, or record, of transactions managed by a decentralized network of computers. For ledger entries to be successfully added to the Blockchain, all computers on the network must agree that the entries are accurate. If they all agree, the ledger entries are added and Bitcoin is issued as a payment. In this way, Bitcoin serves as an incentive to add valid transactions to the ledger, removing the need for a central trust authority.

Is bitcoin a good investment?

Bitcoin appears to trace previous bubble patterns. After rising more than 1,300% in 2017, bitcoin began 2018 with a precipitous decline, losing over half its value in the first month of trading. Bitcoin's rise in 2017 far surpassed previous bubble peaks, such as the dot-com bubble of the late 1990s and the recent U.S. housing market bubble, and bitcoin's rapid recent decline are tracing the decline patterns of those bubbles as well. While predicting the near-term or even long-term direction of bitcoin is impossible, we believe extreme volatility is likely to continue.

Is bitcoin a safe investment?

The value of bitcoin or any given cryptocurrency remains highly uncertain. Cryptocurrencies such as Bitcoin, Ethereum and Litecoin have all exhibited significant price fluctuations due to these high levels of uncertainty.

In addition, cryptocurrencies are not common stocks of companies and do not trade on stock exchanges. Unlike an investment in a stock or mutual fund there are no underlying fundamentals (cash flows, profits, tangible assets, etc.) to support the valuation. The uncertainty this creates has led to extreme volatility in cryptocurrencies such as bitcoin, ethereum and litecoin. Other risks include price manipulation by unknown market participants, the potential for government interference and competition from other cryptocurrencies. The SEC and other regulators have recently issued letters warning investors of these risks.

What is Edward Jones' guidance?

We believe cryptocurrencies are highly speculative and don't offer a way to purchase or hold cryptocurrencies or future contracts on cryptocurrencies. Additionally, Edward Jones doesn't offer a way to purchase cryptocurrency-related funds,  exchange traded funds (ETF) or  exchange traded notes (ETN) that own cryptocurrencies directly, or cryptocurrency-related over-the-counter (OTC) traded securities.

We recommend following time-tested investment principles and - not letting the fear of missing out negatively impact your long-term investment strategy.

Remember to always do your homework before deciding on any investment, including emerging technologies and markets. Working together with your Edward Jones financial advisor can help you determine whether a particular investment is suitable for your portfolio.

Important Information:

This report does not take into account your particular investment profile and is not intended as an express recommendation to purchase, hold or sell particular securities, financial instruments or strategies. You should contact your Edward Jones Financial Advisor before acting upon any Edward Jones Research Rating referenced.

All investment decisions need to take into consideration individuals' unique circumstances, such as risk tolerance, taxes, asset allocation and diversification.

This publication is based on information believed reliable but not guaranteed. The foregoing is for INFORMATION ONLY. Additional information is available on request. Past performance is no guarantee of future results.

Diversification does not guarantee a profit or protect against loss in declining markets.

Special risks are inherent to international investing, including those related to currency fluctuations, foreign political and economic events.

Dividends can be increased, decreased or eliminated at any time without notice.

An index is not managed and is unavailable for direct investment.