Invest in Bitcoin? You’re Safer In Tulips
Bitcoin hit an all-time high by passing $7000 today.
That’s a 7-fold increase year-to-date! What!?!?
I google’d “bitcoin price” and here’s what it spit out:
Really? 1 Bitcoin = $7,000?
I don’t know. I’m not a wizard so I can’t say I can predict the future. But let me put it this way:
If your boss tomorrow came by your desk and said:
“Hey bud, lookee here, I invested a ton in bitcoin and now the prices shot up; so given that I have a lot more bitcoin than cash in the bank, would you mind if I pay you in bitcoin rather than dollars? It just hit $7,000 today and everyone’s saying it’s going to hit $25,000 per bitcoin eventually! So you’re really getting a deal! What do you say? Common man, it’s a no-brainer!”
I don’t know about you, but here’s what I’d say:
“Boss, I heard Jimmy wants to be paid in bitcoin; I know it’s stupid of me to do this, but I’ll take my chances by being paid in dollars!”
I mean is it just me? Am I the crazy one?
Here, I’ll make it easier for you: would you rather have your salary be $7,000/month or 1 bitcoin/month?
Bitcoin is Not an Asset and No, It’s Not an Investment
Bitcoin is inherently speculative.
Related: Invest in Bitcoin?!?!
Seriously. Ask yourself why you would even consider buying Bitcoin today. It’s probably because you think you can buy it for $7,000 today and sell it for $10,000 tomorrow. Pocketing a nice tidy profit of $3,000 per Bitcoin. In other words, you’re buying today, in hopes of selling it to someone else at a higher higher tomorrow.
Does this sound like an investment to you?
At this point, you may be asking yourself: well, isn’t that the same with any investment? Like stocks?
Nope. Not at all. Completely different.
Here’s Why Bitcoin and all Cryptos are not Investments
When you invest in stocks, you’re buying ownership of real businesses.
You’re claiming a stake on the future profits of an actual business.
A real corporate entity out there in the world with thousands of locations, that produce tangible goods out of real factories, bundled with real-life services.
We’re talking about companies that probably employ tens of thousands, maybe hundreds of thousands of employees all over the globe.
What are you getting when you invest in Bitcoin?
If you’re “investing” in Bitcoin today, you’re exchanging $7,000 for 1 Bitcoin. And that’s it.
What’s behind that Bitcoin?
Nothing. Absolutely nothing. There is no product, no services, no business, no profits, no ownership stake in buildings, equipment, land, intellectual property, nothing.
It’s mere speculation; hence, not an investment.
It’s Basically a Big Game of Hot Potato
Yeah if you time it right, you can make money.
I’m not saying that you absolutely can’t make money on Bitcoin, let alone on any other crypto-currency. But you’re basically betting on the chances that you can sell it at a higher price to some other person down the line, at a higher price. Some dodo who didn’t buy it as early as you. Am I wrong?
What if a small blip in the Bitcoin frenzy suddenly makes the whole thing reverse course? If confidence in the digital currency is lost?
I’ll tell you what’ll happen.
Everyone will want to sell sell sell. No one will want to buy buy buy. People will panic because they’ve invested so much of their life savings into their Bitcoin. This panic will set off a chain reaction of even more frenzied panic. And isn’t that what ends up happening when any bubble pops?
One day you’re sitting high, Bitcoin millionaire, with 150 Bitcoins totaling $1,050,000 in value. Nice!
And the very next week Bitcoin plummets by 99%, and now guess what: you have 150 Bitcoins. That’s it. Your screen shows a number of 150. Just like the week prior.
But there is no value behind it. The US government backs dollars, sorry. Not Bitcoin.
Not so nice!
The Technology is Viable, but the Currency is a Gamble
As I’ve mentioned in my previous post on Bitcoin (Invest in Bitcoin?!?!), the block chain technology behind Bitcoin is fantastic and will definitely be the future of banking and exchange.
But out of the hundreds of cryptos out there, pegging your chances on just one type of crypto currency winning out, long-term, is a gamble. How is it not a gamble?
So if you like to gamble, go for it. But don’t trick yourself into thinking it’s an investment.
At this point, it’s about as safe as tulips. If you’ve never heard of the “Tulip Craze” read about it below in the “Additional Reading.”
Investopedia – The Tulip and Bulb Craze (1630s)
Business Insider – Bitcoin will Soar to $25,000 in 5 Years
The Economist – Greater Fool Theory: The Bitcoin Bubble
What are your thoughts on Bitcoin? What about Etherium or the countless other crypto-currencies out there? Do you share my sentiment or do you vehemently disagree? I’d be interested to know your take, so share in the comments below!