Penn Wealth Publishing

2019.01.13 Penn Wealth Report Vol 7 Issue 01

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6 penn wealth Report volume 7 issue 01 13 Jan 2019 Copyright 2019. All Rights Reserved. strategic vision The S&P 500 had an outstanding 2017. In fact, the benchmark index was up nearly 20%. But, what if we told you there was actually a high-volume invest- ment that rose 1,420% for the year? Hard to believe, but that is the precise return of the NYSE Bitcoin Index in 2017. Back in 2000, investors were becom- ing emotionally attached to equities with fanciful PE ratios, like AOL. In 2017, they were enamored with something that had no physical attributes—a digi- tal currency. It was around the beginning of 2018 that we began receiving phone calls from clients about this "currency of the future." Perhaps it was fear of miss- ing out, but millions of Americans were suddenly asking their brokers how to get in on the action. As is so often the case, by the time an investment reaches "craze" level, people tend to jump in en masse—just in time for the bottom to fall out. Just before Christmas of 2017, the Bitcoin Index topped out around $18,000; not bad for something that was selling for $900 the previous Christmas. e sky was the limit, with digital currency "miners" telling us that $30,000 was on the horizon. By the time the dust settled on 2018, bitcoins were going for under $3,800 a virtual coin. A 75% loss. Ironically, that is almost identical to the 78% drop in the NASDAQ from its high in March of 2000 to its trough. Perhaps the belated bitcoin investors of 2018 can take some solace in the story of the South Sea Bubble, which took place some 298 years prior. War of Spanish Succession. When the last Hapsburg king of Spain, Charles II, died childless in 1700, his throne was willed to Duke Philip of France—King Louis XIV's grandson. is didn't set well with the Hapsburg King of Austria (and the Holy Roman Emperor), Leopold I, who wanted his son Charles to take the Spanish throne. Suddenly, France and Austria were at war over the issue, with Bourbon Spain join- ing with the former (e Bourbon Alliance), and Great Britain, the Holy Roman Empire, and Prussia siding with Austria (e Grand Alliance). Spain was divided, and the balance of power on the continent hung in the balance. e South Sea Company. Prior to and during the War of Spanish Succession, Spain controlled South America, which meant the country controlled the lucrative trade between that region and Europe. In 1711, when it was becom- ing obvious that e Grand Alliance held the upper hand, a British joint-stock interest known as the South Sea Company was created. e organization was founded by Edward Harley and John Blunt as a competitor to the Bank of England, which had consolidated British government debts on a number of previous occasions. As Great Britain was footing the lion's share of the war's costs, the idea was for the South Sea Company to take over the current national debt. With the approval of the British government, debtholders would be issued shares of the company equal to the amount owed, and would receive interest (in the form of dividend payments) of 6% per year on the shares. 300 years before Bitcoin, the same herd mentality swirled around an investment in Britain's South Sea Company. e South Sea Bubble Western Civilization

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