Bitcoin - Should you "invest" in it?

You may have recently heard about a brand new investment called Bitcoin that has been making millions of dollars for people around the world and how its value continues to rise with each passing day. The allure of such a great Return on Investment (ROI) might even have you thinking about purchasing some Bitcoin with the intent to hold it, and then sell at a later date for a profit. This blog post aims to answer some questions you may have and also provides my thoughts on Bitcoin as an investment.
What is Bitcoin?

Bitcoin is the first decentralized digital currency using a peer-to-peer network with encrypted transactions. These transactions are recorded in a public ledger, called the blockchain, that cannot be modified in any way. As a result, Bitcoin transactions are enormously secure, are not beholden to any central bank or government, and are completely anonymous.

The blockchain has the potential to be enormously transformative, and could become an underpinning technology in the near future. It has a nearly unlimited number of applications from a ledger of house purchases, a ledger of passports, and so on.

Bitcoin Performance

Over the last couple of years, the value of Bitcoin has soared from being worth a couple of cents to its now current price around $17,000. Every time you hear about Bitcoin, its value has increased and reached a new high. This begs the question that many will be thinking, should I invest or is this just a bubble?

In my opinion, Bitcoin value is showing all the signs of a bubble. There has been a frenzy of people that are purchasing Bitcoin with the intent to jump onto a new money making opportunity, which in turn is driving the price up. Along with that, Bitcoin does not have any real world value currently. Transactions involving Bitcoin are not instantaneous, and can even taking as long as a couple of hours depending on how busy the exchanges are.

Investing means purchasing a piece of a tangible asset. When you buy a company's stock, you effectively own a small part of that company. As the value of the company rises, the value of the stock you purchased increases as well. Since Bitcoin does not represent anything, acquiring Bitcoin would be tantamount to speculation and would not necessarily be considered an investment.

Whether to purchase Bitcoin?

I personally believe that no one should currently be looking to get into speculating with Bitcoin. Its value is most certainly creating a bubble and a price correction is most certainly guaranteed. Also, since Bitcoin transactions are not instantaneous, the correction could be even more acute since everyone would be trying to get out at the same time, which could lead to the relatively new cryptocurrency exchanges to crash.

It might be a good idea to simply wait out the Bitcoin speculation and get into cryptocurrency at a later time. If you're truly enamoured with the idea of betting on Bitcoin, the amount spent should be less than 5% of your investment capital. I personally believe index investing is the best way to inst since you will match the market gains over the long term (a later blog post will go over index investing).

In conclusion, Bitcoin is not a smart way to invest currently and should be a minuscule part of your portfolio.

Disclaimer: This post is a personal opinion and the author does not advise making investment decisions solely on the contents of the above post. Users take action at their own risk.


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