Bitcoin has been the hottest topic in the financial world for the last month. I wrote an article about The Rise of Bitcoin about a month ago. Back then the price of 1 bitcoin (BTC) was a little under $50 which at the time was 10 times higher than the year before. 3 weeks after I wrote the article, the Bitcoin price reached about $250 and then it crashed, so as of right now it’s trading at about $70, but it’s far away from stable price.
That’s just an example of what I warned the bitcoin investors in my previous article.
The market is really volatile. It’s a roller coaster and it will continue to be a roller coaster at least for now.
You have to understand something about investing in bitcoins. People just don’t get it and the fundamental purpose of the crypto-currency seems to be compromised, at least to me.
A currency is a medium of exchange. People are supposed to trade it for goods, just like you trade your dollars, euros, rubles or whatever currency you are using for all the things in life (food, gas, rent, clothes, etc). Right now, Bitcoin is nothing more than a speculation tool. People buy it for only one purpose – capital gains.
You are not going to pay your monthly bills or your groceries with bitcoins, even if you had that opportunity. Why? Because you’d be an idiot to spend something that you expect to gain massive value in the future compared to the paper currency that’s most likely to lose value. If you think Bitcoin will lose value, why are you holding it at all? No one obligates you.
Yes the transactions are safe and anonymous. You can cross boarders without problems, pay anybody and there is no fear of your money getting confiscated by authorities. But that matters only when you make normal transactions. When you exchange bitcoins for another currencies all the major exchanges require your full personal information and by the way those exchanges have been compromised in several occasions.
Another problem, at least for me, is its heavy software. It takes resources like a web browser and it takes significant space to store all the blocks/transactions, not to mention that the internet speed slows down. Now, that’s a little whining from my side and I will deal with it but I’m sure it bothers many other people as well.
I think I focused too much on the problems of Bitcoin, there are a lot more. They are not what matters the most. The question is if it’s still a good investment?
My answer is YES. I think Bitcoin is still a good bet. And let me tell you why.
Despite all the things that bother me about it, there is no question that it’s a great innovation. There is no question that it’s an alternative. We don’t trust central banks and governments. The financial crisis is far from over. Bottom line – people need something like Bitcoin.
And let’s not forget. It’s just the beginning. The whole Bitcoin system is going to develop and improve. More and more people will get educated about it. There are going to be better platforms, tools, exchanges, etc.
Can it go to ZERO? Yes. How likely is it? I guess less than 5%.
Can it pass $1000 one day? Yes. How likely is it? Maybe about 50%.
In my books, that’s a very good bet. (See our article about taking risks)
You should have bitcoins in your portfolio. It’s up to you about the percentage of it you want to invest in Bitcoin. But don’t go all in, balance your investment portfolio with other assets. Don’t panic when prices drop and don’t get overexcited when prices jump. It’s still a small market that has the potential to grow a lot.
Currencies and virtual commodities live on promises and trust. As long as there is demand and acceptance Bitcoin will be out there.