Should You Speculate in Bitcoin?

When it comes to looking at the money that possibly can be had, I’m not going to tell you that speculating in Bitcoin will make you rich—I’ll leave that to the various scammers out there. There are plenty of websites run by guys yearning to tell you the secret strategies they used to make a million dollars (or more) speculating in Bitcoin. To tell you the truth, I think most of these guys are lying. Pretty sure, actually. After all, if they made a million dollars speculating in Bitcoin, why are they bothering with the relative pennies they’ll make selling you their secrets via self-published pamphlets and e-books?

I myself have not made a million dollars speculating in Bitcoin. I’m not much of a speculator, actually. I’m kind of the anti-investor; everything I invest in turns to whatever the opposite of gold is. If you see me investing in something, short it. If I buy Bitcoin at $650, you can be all but assured that the price will drop below $500 within a week. I’m that bad at the investing thing.

Just because I’m a horrible investor, however, doesn’t mean that you will be. Given the frequent and extreme fluctuations in Bitcoin pricing, it’s certainly possible for someone (not me, of course) to invest in Bitcoin at $600/BTC and sometime later sell that investment at $700/BTC. If you’re savvy and somewhat lucky, investing in Bitcoin can return significant dividends.

I believe, however, that the days of really huge returns on Bitcoin are long past. The guys who invested back in 2013 when the price was in the $100/BTC range made a veritable bundle when the price subsequently shot up close to $1,000/BTC. (Of course, anyone who bought at $1,000/BTC subsequently lost a bundle when the price dropped back down below $500/BTC.) I think it’s unlikely that we’ll see a similar tenfold increase in value anytime soon, if ever. Though still volatile, Bitcoin pricing has stabilized substantially, making those kinds of millionaire-making price swings a thing of the past.

I could be wrong about that, of course. That’s the thing about predicting the future—no one really knows. I suspect, however, that aside from the expected day-to-day price swings, any significant future increase in Bitcoin value will happen at a much slower, more gradual pace. I think it will come, especially as Bitcoin becomes more mainstream and thus attracts a greater number of everyday users. But this kind of price increase doesn’t happen in a day or a week or even a month; it might take a year or more for Bitcoin to inch close to that $1,000/BTC level again. (And Bitcoin might never hit the dreamed-of $10,000/BTC level. Or again, it might.)

So, to the main question: Should you consider Bitcoin a viable investment? I think the answer is a qualified yes. Qualified in that I think short-term gains and losses are still speculative; it might be possible to make money from one-day or one-week gains, but equally possible to lose big in that environment. If you want to speculate on these short-term price swings, good luck to you—even if I don’t personally recommend this strategy.

Instead, I see Bitcoin as more of a midterm to long-term investment, in which you look for 25% or so gains over a one- or two-year period, and soldier through the short-term volatility for the nonce. That’s still a very good investment, even if it won’t make you rich overnight. It’s a matter of speculating on daily volatility (risky) versus investing in Bitcoin as a more stable currency (less risky).

And if you’re just an ordinary Joe or Jill checking out this whole Bitcoin thing, the best investment advice I can give you is to run away. Quickly. Bitcoin is way too risky for the common investor; you need a stomach of steel to deal with the titanic price swings still inherent in the Bitcoin market. You can lose a lot of money real fast with Bitcoin, and that’s not a risk most investors are (or should be) willing to take.

If you do choose to invest in Bitcoin, however, make sure you invest only as much money as you’re willing to lose. Given that Bitcoin is an unregulated and untested currency, its value could drop to zero without warning, leaving worthless any Bitcoin you might be holding. Don’t gamble with the rent money, in other words.

Remember, though, that I am not a qualified financial advisor. (I am also not a lawyer or a doctor or a candlestick maker.) My “advice” is nothing more than the idle ramblings of a guy who writes books for a living. When it comes to speculating in Bitcoin, you have to follow your own muse and make your own decisions—and then live with the results.

A Bitcoin Bubble?

To some, the whole Bitcoin thing feels a lot like the dot-com bubble of the late 1990s. For those of you too young to remember, this was the era of hyper-inflated Internet stocks for companies existing solely of an idea but with no viable business plan. Everybody and his brother wanted in on the Internet boom, so even the dumbest ideas attracted investors. (Sometimes the dumbest ideas attracted the most investors!) Fledgling dot-com companies got giddy with venture capital money, filed for ridiculously priced IPOs, and then saw their post-IPO stock price rise even higher.

The problem was, it was all phony-baloney value. Many of these companies never generated a penny in revenue, let alone in profit. The only profits being made were by speculators who had the wits to sell their stock before the bubble burst. Too many other investors—especially casual players—saw their holdings vanish into thin air as stock prices inevitably tumbled and companies closed their doors.

In short, with many dot-com companies of the day, there was no “there” there. Some fear that the same thing is happening with Bitcoin, especially because it’s not backed by any existing commodity. Like the dot-com stocks, Bitcoin has value only because investors say it does. Wishful thinking piles on wishful thinking, causing the price to rise. There’s no reason for it; it just keeps rising. Just as it did for stocks in that original dot-com era.

Now, Bitcoin might turn out to be something completely different from the stocks of the dot-com era, but forgive those who feel as if they’ve heard it all before. Although there are differences, the similarities are numerous. It’s quite possible that we’re living in a Bitcoin bubble that is bound to burst at some time or another. If that happens, any Bitcoin you hold could be worth next to nothing. And there would be a lot of people saying, “I told you so.”

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