Should You Buy Bitcoin?

December 13, 2017

“Technology has advanced greatly, but human psychology is still the same.”

 

I’m an aggressive investor. When stocks were tumbling during the Great Recession and everyone was running for the exit, I was buying stocks left and right. I even deployed most of my emergency funds. Those kinds of deep bargain opportunities only happen a few times in our lifetime, and they paid off handsomely.

 

But I would never buy Bitcoin. It’s a gamble, not an investment. Here’s why I wouldn’t recommend it.

 

1)  It’s very hard to determine its true value.

 

An analyst can estimate how much a stock is truly worth by looking at the company’s cash flows and earnings.

 

Bitcoin does not generate any cash flow. Its true value lies in its use of blockchain, which is an open global ledger that has a lot of useful applications for businesses. Blockchain can allow money transfers anywhere in the world very cheaply. Bitcoin is the largest implementation of blockchain technology to date. But it’s hard to tell which digital currency will survive and flourish.

 

According to Nassim Taleb (famous trader and risk analyst), any price level is possible for Bitcoin: 100,000 or 100. Sounds like roulette to me.

 

2)  It’s really risky.

 

Your bitcoin holdings can be hacked. More than $70 million in bitcoins were stolen last week from a digital currency platform called Nicehash. Bitcoin exchanges are being hacked every year since 2011. The largest hack occurred in 2014, when hackers stole about $450 million from Mt. Gox, a bitcoin exchange based in Tokyo.

 

Regulators can potentially clamp down on the use of bitcoin, since digital currencies make it easier for criminals to transact without leaving a trace.

 

3)  It smells like a bubble.

 

Bitcoin has almost tripled in value over the past month, and has increased by more than 2,000% over the past year.

 

Analysts are drawing similarities between the surge in Bitcoin prices and the Tulip mania in the 1600s. The latter ended in a crash.

 

 

There are plenty of decent investment opportunities. Bitcoin is not one of them. If you'd like to hear about our investment ideas, schedule a free discovery call with us today.

 

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