Lately, we have seen this all over the news and I just had to jump in and not ignore this news about Bitcoin. If you are not aware about Bitcoin but as of December 15th of last year (2016) the price for one was $775.48, now on December 13th of 2017 it is $16.407.20, almost 20x in a year. Yes, I wrote that correctly, so if you bought it last year one of you could of had over $16,000 right now. Crazy? Yes. So, should you invest in Bitcoin?
By jumping in I mean that I actually went and bought some and you can call it a bad decision. Now, I am not an investor (yet) not even an expert at markets but know few things here and there. You might say I’m unqualified about writing about this but I think completely opposite.
There were many people that become millionaires in this past year and even billionaires like the Winklevoss twins, this guys had become billionaires now and according to them the Bitcoin will go another 20x. According to them cryptocurrency and the Bitcoin is just the beginning phase of future investing.
There were a few quotes from notable people like Warren Buffet and Jack Bogle on Should you invest in Bitcoin?
Warren Buffet said: “Stay away from it. It’s a mirage, basically…The idea that it has some huge intrinsic value is a joke in my view.”
Jack Bogle said: “You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing.”
Ok, let me elaborate their statements for you I mean this guys are a key investors and are most well known and nobody had even close bet against them.
Stock bring value and if you are even an average investor and know some things or two about evaluating a company or a start up, in the end you will still make or lose money. Yes, you could use services that companies provide and they will do this investing for you for a fee. But the basics you should know.
Overtime the efficiencies bring profit which increases the value of the stock. But even if the valuation of the company for that stock is low in a few years, you still in the end made some money if there was a stock buybacks or the stock paid the dividends to its shareholders. Now, Bitcoin doesn’t do any of that or anything, there’s no support for it. Or I call it it just exists in this day and age.
Now, but still should you invest in Bitcoin?
You might know the basic facts that:
1. Only a few early investors get rich when it comes to stocks, then
2. The investors claiming that this is the next big thing.
3. Everybody gets excited like us and jumps in.
4. Volatility happens ( Volatility is “liability to change rapidly and unpredictably, especially for the worse.”) (Bitcoin went up by 40% and down 25% in just one week)
5. The early invested investors cash out on us, causing a decline (this is usually big)
6. We get fearful and start selling everything we could with that company
7. That bubble bursts and the prices crash – so most of the “get rich quickers” slowly exiting (still believing that they can make money).
You can see it for yourself by looking at Housing market in 2006 or tech stocks in 2000’s. They go by the same scheme that I just posted in 7 steps above. Look them up if you don’t believe it. Now, the Bitcoin is going the same direction all the way to step 7.
Housing Market Chart
Technology Market Chart
So, see what I mean? The bitcoin is going to be just like other markets that everyone jumped in. There’s no guarantee that the value will keep going up and as hopefully you know that stocks have a limited supply.
Also important to note that cryptocurrency is uninsured, way less regulated, and much more volatile and I mean it: It went up by 40% and down by 25% in just one week, that is very sensitive.
In my case I used Coinbase to buy mine and I know that their funds with bitcoin are not secured and if they pull the plug thats it for me and many others. Compared to traditional investment brokerages where the funds are insured and have much stricter regulations.
So, should you invest in Bitcoin? Well, the thing about market is that it has people like us that buy and sell and it does not care about me or you debating whether it is a good time to buy or not. In the end it’s anybody that can predict the value and what it would be in a day, week, month, year or even a decade. It is very hard to win at market timing. And if you do, that is a pure luck more than anything else. So, good luck 🙂
Richard Barnett is a student majoring in finance, entrepreneur, marketer, content writer, budget traveler, and financial blog “Student Money Adviser” owner. You can read more about me here.