Bitcoin has reached all new heights, attracting the interest of investors and non-investors alike. Many people are more interested in trying to snag a piece of this crypto-currency’s astronomical gains than really enjoy the unique attributes of an anonymous digital money. So should you buy?
TL;DR – No, you probably shouldn’t invest seriously in Bitcoin, but you can buy one or two Bitcoins for fun if you really want.
I first heard about Bitcoin in 2009 or 2010 from my boyfriend at the time. He even got me to set up a wallet, so I could use my computer to earn Bitcoin’s in the background. At that time, I was freaked out at the idea of something or someone using my computer’s processing power while I slept, so I’m not entirely sure if I actually own any Bitcoins. Last year, I made some efforts to try to find my lost wallet in the hopes of learning out I had a handful of Bitcoins kicking around from my undergraduate days. But in what has been almost 10 years, I had given my old computer to my sister where it has since passed away. If I ever had any Bitcoins, they’re long gone.
What exactly is Bitcoin?
Bitcoin is a digital currency, which means there are no actual coins or paper money representing it. It was started anonymously in 2009, and exists completely electronically. The interesting thing about this is Bitcoin has no real intrinsic value.
Because Bitcoin doesn’t represent something tangible, its value is determined entirely by what people think it to be worth.
Which these days is actually quite a lot.
Unlike the currency of a country which is regulated by a government, no one controls Bitcoin. Likewise, there are no Bitcoin banks. Bitcoins are stored in a digital wallet on the user’s computer or in the cloud. There are risks to both of these: the wallet on your computer can be deleted accidentally or lost if your computer crashes, and a wallet in the cloud can be hacked. Because Bitcoins are not regulated by any government, they’re not insured by the FDIC (USA) or the CDIC (Canada). So if your Bitcoins are every stolen or lost, they’re gone for good.
Why is Bitcoin so popular?
The main reason Bitcoin is so popular now is because it’s trading at an all-time high. But the real reasons Bitcoin initially become popular are because of it’s anonymous and unregulated nature. You can use Bitcoin to buy things anonymously, which has made it popular for making illicit or illegal purchases online.
A less dark perk of owning an anonymous unregulated currency is it’s a great way to tuck away wealth outside of the risk of regular currency volatility. This concept probably doesn’t make a lot of sense for North Americans who enjoy fairly stable currency (except for how annoying it is to buy anything in USD as a Canadian right now), but in countries with less political — and therefore monetary — stability, Bitcoin offers an attractive option removed from this risks of government and currency collapse.
Another important reason Bitcoin is taking off is many businesses are warming up to Bitcoin, both online and off, and accepting it as a form of payment for their products and services. The more companies that accept Bitcoin, the more utility it has, and therefore the more valuable it is likely to become.
Bitcoin as an investment
Why do people want to invest in Bitcoin? Well, for starters, this:
Bitcoin’s growth this year has attracted a lot of interest, even from people who don’t invest in anything.
The downsides of investing in Bitcoin
Bitcoin is volatile af. Few investors can handle watching the price move 20% to 40% in a single day, but that’s the stomach you need to have if you’re going to hold Bitcoin as a long-term thing.
Without insurance or government backing, Bitcoin is one of the riskiest investments available, which means you probably shouldn’t make it the cornerstone of your retirement portfolio. But can you make some quick cash? Probably. Maybe. If you’re really fast and careful, which you’re likely not.
Why you already suck at investing in Bitcoin
One of the hardest things to do when you’re investing is sell when you’re ahead. Why? Because if a security you’ve purchased has rapidly increased in value, you assume it’s going to continue to do so. Considering Bitcoin right now, what do you think the top of the market is? You have no idea. Nobody does. But maybe you’re thinking $2,500 or even $3,000 USD per Bitcoin. However, once your Bitcoins actually reach that threshold, the first thing you’re going to think is, “Damn, I was really off. The top is obviously $5,000!” and then proceed to wait for your investment to hit that target.
There are a few ways to avoid this. The first is to pick your selling target and stick to it, even if it means you’re going to check the value of Bitcoin for the next three years and kick yourself for selling so early after it quadruples in price. The second is to buy a handful of Bitcoin, say 3 or 4, and then sell them off as you hit a step-ladder of price targets, effectively capturing profits while still leaving some skin in the game. Of course, this second method requires you to have $10,000 to play with on uninsured electronic internet currency. Do you?
If you think you’re the person that’s going to be smart enough to sell Bitcoin the month/week/day before its price is cut in half, you’re not. You don’t know any more about cryptocurrency markets than the next person, and realistically, if you’re honest with yourself, you probably know much less (don’t hate the messenger, you’re the one that Googled “is Bitcoin a good investment?” and ended up here in the first place).
The fact of the matter is, you already suck at investing in Bitcoin. Otherwise, you would have entered 5 years ago.
Is there still an opportunity to make money in Bitcoin?
Yes, probably. People are excited about this cryptocurrency and it will likely see gains for awhile. Does this mean you should jump in? Not as an investment, but if you want to put a Bitcoin or two in your pocket for fun, go for it — just make sure you can handle the volatility.