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| If it sounds too good to be true it is. Only invest in value and income. Don't invest in speculation. |
I casually know someone who bought $100 worth of Bitcoin when they were real cheap. Before you think he must be rich now, know that he sold his position when the price had gone up 10 times. He made a tidy profit but he didn't get rich. And then last year several of my friends jumped onto the Bitcoin bandwagon. One pal I've had for 11 years invested $3000 in Bitcoin in December. I don't know how much he really lost but he never talks about Bitcoin any more.
What would you say if I were to approach you on the street and offer you a job in a new company, but I would only pay you in shares of stock? "How much is the stock worth?" you might ask. "As much as anyone else is willing to pay for it," I would say.
Bitcoin will never replace real money because it's never going to have a stable value. If I pay you 1/10,000th Bitcoin today will you be able to buy as much stuff with that value in 2 weeks as you can today?
If you think of Bitcoin as an investment commodity, like rare coins or stocks, you might think that's a reasonable gamble. If the price of Bitcoin goes down over the next two weeks it might recover in the following months. As long as you don't sell at a loss you haven't lost anything.
Of course most small investors don't have that kind of discipline. And the big money fund managers sometimes lose on their investments. We have to concede that the pros aren't always right about picking winners.
Although inflation hurts the value of the dollar over time it doesn't have the same impact as market volatility has on Bitcoin. Even the Venezuelan currency has a predictable rate of inflation. I wouldn't want to be paid in Venezuelan Bolivars but if I were I could project what they would be worth in two weeks (next to nothing so maybe this is a bad example).
To be a real currency any currency must be stable over long periods of time. If its price can bounce up and down based on whatever the market will pay then it's what the market is paying with that matters. That is the real currency. In Venezuela there is a huge black market in U.S. dollars. People want to be paid in U.S. dollars because they can budget for things they need in that currency. If you live near the border with Colombia you can walk across, buy groceries, and go home. If you have U.S. dollars.
Bitcoin would have to be predictable that way to be a real currency. Otherwise it's just a commodity you can trade on the market. It's like a pair of old shoes. Some people may want them. Others won't.
I won't even dignify Bitcoin by comparing it to stocks and mutual funds. Most stocks and mutual funds represent companies with revenue. There may be some companies in decline but they still have income. What income does Bitcoin represent? What hope of income does it represent?
History teaches us that speculators drive up the prices of commodities right before the markets go bust. When the price of Bitcoin was skyrocketing last year I was convinced it would crash. I couldn't predict when but I didn't want any part of that market.
I do invest in the stock market. I own shares in dividend-paying stocks. I also have shared in a mutual fund that invests in dividend-paying stocks. As long as I can see where the money is coming from I think a company is worth investing in. Bitcoin doesn't represent an income source. I don't see why people would buy it.
