Bitcoin, cryptocurrencies continue growing but Mitchell banks remain skeptical on the 'risky investment'
“It’s the wild west, but as the U.S. dollar devalues more people will come to crypto. And the more people who get in, the more rich all of us invested in cryptocurrency become,” said Stephvon Bailey, a Mitchell resident who has been investing in Bitcoin and other cryptocurrencies.
For Stephvon Bailey, investing in cryptocurrency has been the “wisest financial decision” he’s ever made.
The Mitchell resident recently bought about a penny worth of a cryptocurrency and made a little over $50,000 six months later. Bailey is one of about 220 million people who use cryptocurrencies, according to recent figures from a July report on crypto.com.
“Getting into crypto was hands down the best decision I’ve made with my money. I’ve helped friends get into it, and watched them build more wealth than they ever have,” said Bailey, who has used his profits from cryptocurrency to help grow his food truck business.
Cryptocurrency, at its core, is a new form of digital money that is decentralized and can be used to buy goods over the internet and exchange money without a bank being involved. While there are thousands of cryptocurrencies and counting, Bitcoin has emerged as the most popular one. Since its inception in 2009, Bitcoin has surged from a penny to around $57,000.
Though Bailey is building wealth from investing, the unregulated digital currency has not been embraced by many major banking institutions for multiple reasons. And that includes the Federal Reserve -- the central bank in the U.S.
However, that’s beginning to change as big banks like JPMorgan Chase and Ally Bank are now providing financial investment services for some of its customers who are seeking to tap into bitcoin and cryptocurrencies. JPMorgan went as far as starting its own form of cryptocurrency. Big companies like Starbucks, AT&T and Etsy have also begun accepting Bitcoin as payment for goods.
“Seeing some of these big banks hopping on, I think we will see another bull run before we get to the bear market to where they aren’t really moving much,” Bailey said. “The more banks and institutional money we are seeing now get into it is why I think the crypto market is doing so well right now.”
Perhaps the biggest move that Bailey said has the crypto community on notice is the city of Miami, Florida’s creation of its own cryptocurrency that the mayor plans to share dividends with residents who have a “digital wallet.”
As Bailey put it, cryptocurrency is “taking over.”
“The Miami token is a big move that I think will only grow across the country. It’s the wave of the future, and I’m blessed to have dived into it,” he said.
A ‘risky investment’
Despite the growing popularity of Bitcoin and the number of financial institutions allowing cryptocurrency services, many industry leaders dub it a risky investment.
Cortrust Bank was among a handful of local banks that informed the Mitchell Republic they are not providing any cryptocurrency services. Jeff Smith, Chief Financial Officer at Cortrust Bank in Mitchell, said a major reason banks have refrained from the cryptocurrency craze is fraudulent activity.
While Bailey and others view the decentralized aspect of cryptocurrency as a benefit that keeps the government and big banks out of an individual’s money moves, Smith said it’s also led to fraud schemes.
“100% of the time we see any activity through Bitcoin is complete fraud,” he said.
Nonetheless, millions of people across the globe haven’t let that deter them from investing in Bitcoin, helping drive the price up to around $54,000, which is where it was hovering as of Friday.
What makes cryptocurrency different from traditional stocks like Apple and Nike is there’s nothing physically backing it. For example, when one invests and buys shares of a stock like Nike, they are buying shares of the company’s assets and cash flow.
As Smith put it, the only thing driving Bitcoin’s price up is “speculation from a growing number of people who are buying shares and investing in it.” That's what makes it a “very risky investment,” Smith said.
“It’s no form of a good monetary system. You can drive up the price of gold just because of what happens on Wall Street, and that’s not a monetary system you want to deal with,” Smith said. “If a majority of traders of a certain cryptocurrency decide they want to tap out, then it could drop to near zero in a real quick hurry because it isn’t backed by anything.”
He pointed to the volatility of Bitcoin that has experienced in recent months as another reason many banking industry leaders cast doubt on the digital currency craze. In May, Bitcoin plunged to around $30,000, marking a near 50% drop in less than a month.
The sudden drop that erased the roughly $64,000 high it saw in April came after countries like China began cracking down on Bitcoin, demanding financial intuitions not to conduct any cryptocurrency related business, and Tesla owner Elon Musk stopped accepting vehicle purchases in Bitcoin citing environmental concerns around the mining process.
Although Smith and many financial institutions are steering clear from cryptocurrency, he said the concept of a digital currency has potential to become a "legit" monetary system. For that to happen, Smith said the Federal Reserve would have to take the lead on adopting a cryptocurrency that’s regulated through the central bank.
“Everything in our industry is moving toward digital. The Federal Reserve would have to the lead on a digital currency for the majority of banks, especially community banks, to follow suit,” he said
Buying, cashing out cryptocurrency
The process of buying and cashing out cryptocurrency looks a lot different than stock trading. But Bailey said the process is quite simple, noting there have been many misconceptions surrounding it.
“It’s as simple as taking my currency to an exchange like Coinbase, and then I hit the cash out button and it turns it into U.S. dollars,” Bailey said.
Coinbase is a popular method used for buying and cashing out Bitcoin, which entails creating an account with the broker exchange that allows one to deposit or buy Bitcoin.
In addition, there are ATM’s that convert Bitcoin to U.S. dollars. Unlike traditional currencies such as the U.S. dollar that’s exchange rate is determined by the country’s central bank, the exchange rate for cryptocurrency relies on demand for a respective coin.
In recent months, Bitcoin ATM machines have popped up at a few Mitchell businesses like Coborn’s grocery store and Freedom gas station.
However, Smith said he’s seen a lot of fraud with people who have used Bitcoin ATM machines.
“They put this money in the ATM machine and send it off thinking it’s legitimate, but there is a big processing fee,” he said.
Since many banks still prohibit any cryptocurrency related business, Bailey said using the ATM machines to convert Bitcoin and other digital currencies into U.S. dollars is a common method people use before depositing the money into the bank account.
To trade and manage cryptocurrencies, Bailey said a popular way to do so is through blockchain, which is a cyber database that stores an individual’s cryptocurrency and records transactions.
Bailey likens Blockchain to a large bank for cryptocurrency. But the key difference is that blockchain is decentralized, meaning that cryptocurrency trading can be done from person-to-person without having to go through a third party such as an investment banker or company needed to trade stocks.
“Crypto is here to stay, and I think we will see Bitcoin pass $100,000 in the near future,” Bailey said.