If you’re a bitcoin fan, or if you just follow along, you know that today bitcoin hit 20,000. Meaning you can turn one bitcoin into $20,000.
Is Bitcoin A Good Investment?
Bitcoin, like the dollar, and Google stock, has no intrinsic value beyond the fact that people decided it is worth something, and there is a limited supply of it. Unlike the dollar, gold, and Google stock, bitcoin doesn’t have a history, or set of like assets that it can be compared against to determine its theoretical value.
In short, bitcoin is so new, nobody really knows what makes it tick, although there are many people out there who claim to know.
It depends on what you are investing for, and what money you are using. Some bitcoin analysts are calling for much higher bitcoin prices than 20,000.
Before you get caught up in bitcoin euphoria, don’t forget the previous high for bitcoin was set three years ago in December of 2017.
That green arrow is very real, but that red arrow is very real too.
If you invested your kid’s college fun in bitcoin in September of 2017, you were a genius, provided you sold it all in December of 2017. Huge bummer if you didn’t, your kid started going to college in 2018, and you had to lock in huge bitcoin losses by selling.
For investors who bought in at bitcoins’ last celebrated milestone — Bitcoin 19,000 — the last three years were a brutal period of huge losses. If you bought bitcoin near the high three years ago, this new high isn’t big profit, it’s just getting your money back.
Of course, there is already a flood of people pushing the theory that, “This time it’s different.” — It’s never different.
Like all investments, bitcoin will go up and down. Unlike other investments, bitcoin seems subject to huge price swings. That chart may look like a lot of other stock charts, but those numbers on the left side are different than any other chart.
Riding bitcoin from $19,000 to $4,000 is a nearly 80% loss.
The biggest trick to bitcoin is that there is no underlying reason for bitcoin’s price. It’s value is nothing more than what investors say it is, and while the same is somewhat true for gold and stocks, an underlying value always tells you how out of balance a stock is.
Many analysts keep a close eye on numbers like the P/E ratio that compares stock price to company earnings. Companies with higher P/E ratios are considered more speculative, while those with lower P/E ratios are considered safer, value stocks.
Bitcoin Falls Too
If you are going to invest in bitcoin, be sure to keep a close eye on your investment, and do some research so you really understand what you are investing in. Understand the risks associated with bitcoin investing, including hacks that can steel bitcoins from even the biggest bitcoin industry names.
Don’t bet the farm with bitcoin, just like you wouldn’t with any other investment. If you have extra money, or you want to create a part of your portfolio to dedicate to bitcoin, do it. Be smart, and stay diversified with other investments as well.
This article I wrote in June 2017 about is bitcoin real cautioned investors about there being a downside too. More than a few people wrote me emails questioning my intelligence. They were right… all the way until December of 2017. They stopped emailing as the prices plunged.
Above all, remember bitcoin isn’t magical. It will fall again. No one knows when, or how far, but know it will happen. No investment is without risk, especially bitcoin.
Consider Bitcoin an Aggressive Asset Position
Consider bitcoin the most aggressive investment in your portfolio and adjust the rest of your well-diversified portfolio accordingly.
This article is for informational purposes only. It is not a recommendation to buy or sell any security. It is not investment advice. The author of this article is not currently a financial advisor and does not hold himself out to be one. Consult your financial professional, and tax professional for advice on your own specific investment and finance needs. At the time of publication, the author owned bitcoins, although that may change at any time without notice.