Invest in Bitcoin?!?!
Everyone seems to be talking about Bitcoin (and the other crypto’s) these days.
I recently read an article about an 18-year old high school dropout who became a Bitcoin millionaire.
So it’s no surprise that people are taking notice!
What is Bitcoin?
Bitcoin is a digital currency (cryptocurrency) that does not require a central authority (i.e. governments, banks, or digital payment systems like PayPal). Instead Bitcoin uses a decentralized peer-to-peer network to record transactions. Because anything digital has the risk of being copied an infinite amount of times, for digital money to work, there needs to be a system that ensures that no one spends the same money more than once. And this is basically what the block chain technology behind Bitcoin accomplishes: by maintaining these transactions through a decentralized global ledger, rather than through a single central administrator.
Are there other cryptocurrencies?
As of today, there are more than 900+ different types of cryptocurrencies!
Here are the top ten Cryptocurrencies by market cap (as of 6-30-17):
Here are the top Cryptocurrencies by market cap (as of 9-5-17):
My views on Bitcoin
My view is that the technology behind Bitcoin (block chain technology) has tremendous potential and will be increasingly utilized as time goes by. But exactly which type of cryptocurrency will win out remains a mystery. Like I’ve mentioned earlier, there are more than 900 different types of cryptocurrencies out there. And new ones are coming out all the time. Because of this, doing a play on Bitcoin will be inherently speculative. And whenever something is speculative, it’s more akin to gambling than investing. In addition to this, bitcoin has the same issues as any other global currency or commodity. The currency itself is not a business because it does not produce any profits nor does it pay any dividends. Lastly, because we’re still relatively in the early phases of this new technology, the cryptocurrency market is unstable, highly volatile, and extremely illiquid.
Can it be profitable? – Updated as of 9-5-17
Yes, absolutely. Even though I still stand by what I’ve said above, there is no doubt that one can make out-sized profits investing in crypto’s. It blows my mind that since I’ve originally wrote this post, roughly 2 months ago, bitcoin is up 75%. A 75% increase is simply mind-boggling. So, a lot of people made a ton of money on this. Personally, my style of investing is more conservative and so I go with what’s tried and true. So I’ll miss out on some of the opportunity that’s out there. I firmly believe that simple math can get people to become millionaire status without doing these “hail mary” type passes. That said, if you put in 90% of your investments in low-fee passive index funds, I don’t see why you can’t use up to 10% of your money to try hitting it big. As long as you’re not sacrificing your nest egg to do so.
Do you agree or disagree with my assessment? What are your thoughts on Bitcoin and the other popular cryptocurrencies that are out there? And are you allocating a certain percentage of your portfolio towards cryptocurrencies?