Louisville Entrepreneur Tries to Demystify Bitcoin

By BORIS LADWIG

Investors the world over made lots of money on cryptocurrencies last year, including some in the Louisville area. One of them, Enrique Rodriquez, 23, of Jeffersonville, has started a business — funded in part by proceeds from cryptocurrency investments — to help people navigate the complex and confusing world of bitcoin, ethereum and ripple.

Rodriquez said he got interested in cryptocurrencies while studying communication and business at the University of Louisville. Family members started asking him about bitcoin, and when he couldn’t get his father, the late Jeffersonville Councilman Josh Rodriquez, to invest, he decided to launch a business to help people understand bitcoin and its rivals — and avoid falling prey to cryptocurrency scams.

“It’s like a foreign language to people,” said Rodriquez, chief executive of the Crypto Consulting Group.

He started the company in May, as Bluegrass Crypto, built a website and spread the word via social media. Through an uncle, he made contact with Jacob Melin, 22, who joined the business as chief financial officer and lead consultant.

Rodriquez said that he has made returns of as much as 20,000 percent. He invested only a few thousand dollars and is near six figures. Melin used part of his cryptocurrency proceeds to buy a home.

On a basic level, Rodriquez said, bitcoin is a scarce, digital, peer-to-peer currency that’s not controlled by any central authority, like the Federal Reserve Bank.

One bitcoin now sells for about $15,000, but people can buy small fractions. The number of businesses that are accepting bitcoin is small but rising. Overstock.com, for example, accepts them.

The currency has gained prominence recently because of its drastic appreciation.

The value of one bitcoin last year surged to $14,156. 40 on Dec. 31, up about 1,354 percent. But its rise was volatile, and since mid-December, bitcoin has lost about a quarter of its value.

Its gain in 2017 came after a slow start. The currency’s value rose about 20 percent in the first four days of 2017 before plunging more than 30 percent in the subsequent five days. Through the end of March, the currency had essentially recorded no gain, whereas the S&P 500 had produced a gain of nearly 5 percent at that point.

The bitcoin price jumped to about $1,300 by the end of April, and to $2,200 by the end of May, but changed little over the next two months before spiking to $4,400 at the end of August. It fell below $4,000 in September before spiking near $6,000 in October, above $9,000 in November and doubling again by mid-December.

‘Bubble’

The bitcoin craze in December caused popular trading portals, such as Coinbase, to be overloaded. The high traffic delayed the site’s ID verification process — which normally takes minutes — to several days. The surge in interest also prompted Coinbase CEO Brian Armstrong to issue a warning to “please invest responsibly.”

While some high-profile investors are making big bets on bitcoin, investing hundreds of millions of dollars, the currency has its academic detractors. Renowned economist Jeffrey Sachs, a professor at Columbia University, wrote this week in a Boston Globe column that “the bitcoin bubble will likely burst,” in part because of greater scrutiny from governments.

“As governments tighten their grip, bitcoin prices will most likely fall, and perhaps collapse, though the timing is impossible to judge,” Sachs wrote. “Bitcoin seems too prone to illicit use and too vulnerable to government regulation to survive for the long term.”

But the demise of bitcoin has been predicted repeatedly, and for years, including, for example, in 2011, when its value fell to $2.51 after hitting a peak near $33. A $1,000 investment at that point would now be worth about $6 million — though a Morgan Stanley analyst also suggested that bitcoin’s “real” price could be $0.

Cybersecurity and artificial intelligence expert Roman Yampolskiy, associate professor at the University of Louisville, frowns at those kinds of statements.

If someone calls bitcoin a bubble, they’re making a meaningless statement unless they can tell you what the right price is, and nobody is doing that, he said.

At essentially every price point in bitcoin’s history, someone has said that the currency is overvalued, and they have been wrong every time, Yampolskiy said.

“I suspect this trend will continue,” he said.

Yampolskiy works in UofL’s Department of Computer Engineering and Computer Science at the Speed School of Engineering and is the founding and current director of the Cyber Security Lab.

He said blockchain, the technology that underlies cryptocurrencies, is enabling smart contracts, decentralized databases and is making the internet more secure and less centralized, all of which are improvements over current capabilities.

And, he said, more government involvement also means more acceptance. The U.S. now allows bitcoin futures trading, and other countries, too are embracing cryptocurrencies.

Those that won’t, Yampolskiy said, will fall behind, much like North Korea without the internet.

Timing the rise and fall of the cryptocurrency is, of course, difficult and, according to an analyst at Mizuho bank, bitcoin’s risk-adjusted return, which considers how likely it is that you buy and sell at the right time, was lower last year than that produced by the S&P 500.

Yampolskiy said that he has invested in cryptocurrencies at various points in the last few years, and has always been happy with his investment. He won’t say how much, exactly, he has invested, jesting that his tax attorney told him not to tell. Much like other investments, diversification is key, he said.

Limited supply

Rodriquez said that many of his clients want to learn more about cryptocurrencies, while others are looking for an alternative long-term investment. Some clients also are skeptical of the Federal Reserve and government-controlled currencies in general, and a few are looking to make a few quick bucks.

But, Rodriquez warns, “You’re in the wrong place if you just want a quick return.”

Nonetheless, he said he thinks bitcoin’s value will go to $100,000 before it goes to $5,000 or zero.

Demand for the currency will increase further as more merchants start taking it, Rodriquez said. And the supply of the currency is finite, he said. The last bitcoin will be mined in 2140, and at that point no more than 21 million bitcoins will be in existence. Some, Rodriquez said, will be lost and never found again, and a significant number of people won’t want to sell, meaning the supply available for trade will be much smaller than 21 million.

Yampolskiy said that the restriction also differentiates bitcoins from other bubbles, such as the tulip bubble from 1637.

With tulips, you can increase the supply indefinitely, he said.

And, Yampolskiy said, bitcoin does not necessarily have to work as a currency. It could function merely as an investment, like gold. Bitcoin already is less volatile than other cryptocurrencies, he said, and as the market grows, bitcoin will become even more stable.

Client growth at Crypto Consulting Group has mirrored the growing interest in cryptocurrencies.

When bitcoin exceeded $10,000, phones rang off the hook, Rodriquez said.

When he started the business, the entrepreneur was doing about one consultation per month, usually in a coffee shop, and now it’s about one per day. The company recently moved into offices at 9990 Corporate Campus Drive, Suite 3000, in part to host clients in a more professional setting.

Even the currency’s recent sputtering has had little effect on client interest.

“We haven’t really slowed down,” Rodriquez said.

Today, the company has eight employees, including three who work full time. It offers a free 30-minute introductory meeting and charges $50 per hour for consultations. Workshops cost from $75 to $300, depending on the complexity.

Crypto Consulting Group will hold a beginner’s workshop at its office at 11 a.m. Saturday. You can claim tickets for the four-hour event on the company’s website.

Yampolskiy encouraged people to invest, even if just a few dollars. It could be like buying a lottery ticket, he said. Even if you don’t win, you’ll learn something about the future of technology, including cybersecurity and encryption.

“Small price to pay for knowledge,” he said.

This story has been changed to update Crypto Consulting Group’s pricing information.

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