Is Bitcoin An Investment Or A Gamble?

Is Bitcoin An Investment Or A Gamble?

Is Bitcoin An Investment Or A Gamble?
 

In one of my recent posts, “The Right Ways To Time The Market,” I briefly skimmed through the cryptocurrency topic. The main reason for doing so is that I have limited knowledge in this area. Furthermore, my investment philosophy is to only invest in vehicles that I understand and have a sound grasp of it. Truthfully, with all these headlines and volatility, I think that bitcoin or any of the cryptocurrencies are more of a gamble rather than an investment.
 

Regardless of what my biased view is, we can always learn about these cryptocurrencies to improve our knowledge. With that being said, I’ve decided to do some basic research to help myself and my readers get a better understanding of all the cryptocurrencies euphoria that’s going on now. After reading this post, you can then decide for yourself if bitcoin is an investment or a gamble. Let’s dive in.

An Overview Of Bitcoin As An Investment

Bitcoin has been a big story in 2017, though it’s still somewhat easy to ignore as a currency. Those who predicted that it would quickly supplant ordinary currency have been proven wrong. However, the actual value of bitcoin has grown tremendously. Therefore, while we can for now largely ignore it as usable currency, many people are beginning to pay closer attention to bitcoin as a form of alternative investment, and a means of diversifying a portfolio.
 

I won’t advocate for or against this idea because bitcoin is still a relatively new concept and it’s difficult to see where the market’s going. But here are some of the things you should know if the idea interests you.

What Bitcoin Is

An article proclaiming to explain bitcoin in layman’s terms put it in the simplest terms possible: bitcoins are a form of virtual currency, meaning if you have bitcoins you don’t physically purchase goods, but rather conduct electronic transactions. More practically speaking, bitcoins are essentially lines of code with monetary value that can be transferred from one user or source to another. You can buy bitcoins through an exchange (commonly done now via app or desktop program), and then control how and when to use them (or where to send them). One important distinction to keep in mind is that when you see it written as “Bitcoin” with the first letter capitalized, the writing may be referring to the entire system or Bitcoin network; the word without capitalization refers to the actual digital currency. As for how it should actually be handled, read on!

How Bitcoin Storage Works

When you buy bitcoin through an exchange, it is transferred to your bitcoin wallet – or at least, that’s the easy way of putting it. In reality, no such substance as bitcoin actually moves into your possession. What you store instead are the secure digital keys used to access addresses and sign transactions. The bitcoin you’ve purchased simply exists at an online address; your secure digital keys are yours alone, however, and allow you to control what that bitcoin does. You can sell it, use it to purchase something or, for purposes of long-term investment, hold it in your wallet for an extended time. Also of note is that there are multiple forms of wallets, divided into two categories: hardware and software. Hardware wallets store keys on devices (or even paper) that aren’t connected to the internet (“cold storage”). Software wallets are online programs or apps.

What Impacts Bitcoin Value

This is one of the big questions involved in bitcoin investment, and it’s one for which I don’t necessarily have concrete answers. When you deal with an ordinary stock or asset that’s been around for years, there tend to be clear patterns and known indicators that can tip you off to movements in value. Bitcoin is still new though, and it’s not as easy to say what impacts the value. However, I do have a few ideas. For instance, multiple analyses have concluded that Japanese men are behind the surge of late, perhaps in part thanks to Japan easing regulations on cryptocurrency exchange earlier this year. We also know that when a major exchange tool or wallet system becomes available to a new group of users there can often be a spike in activity. And many are also predicting that major financial crises could conceivably lead to bitcoin booms in much the same way gold has been boosted during such times in the past. So, broadly speaking, we can say that government regulations, available tools, and broad economic trends could all impact the value.

Recent Bitcoin Trends

Frankly, the recent trends in bitcoin probably won’t do you much good as an investor, because the digital currency has been both incredibly volatile and incredibly robust of late. In late September, bitcoin crossed the $4,000 threshold; by October 31st, it was over $6,000 and climbing; December 1st saw the price over $10,000, and in the middle of the month it hit a new high just under $20,000. In the midst of this sharp climb, however, there have been times when the cryptocurrency’s value has plummeted by more than $1,000 in a single day. Furthermore, a lot of sharp investment analysts believe bitcoin is currently in a massive bubble (and thus due to fall off significantly). Time will tell, but right now the recent trends are almost too crazy to draw much from.

My Two Cents

With any types of investments, the higher the potential for greater returns the greater the risk and volatility. Before you invest in these high flyers, just be aware of one thing, “the faster it goes up, the pace is even faster when it comes down.” Play it smart and make sure that you have a full understanding of the ins and outs before you invest in any of these cryptocurrencies.
 

So readers, what’s your view on cryptocurrencies? Do you have the risk tolerance to stomach the volatility and invest in cryptocurrencies?
 

Note: This post is a collaborative post. Please read my disclaimers for more information.

 

Leo T. Ly, Canadian Personal Finance Blogger/Enthusiast and a Realtor Living in the Markam, Ontario, CanadaAbout Leo
I am a Canadian personal finance blogger/enthusiast and a Realtor living in Markham, Ontario, Canada. I built a net worth of a million dollars over a ten year period. I did it by being a disciplined saver, taking advantage of income tax rules and borrowing money to invest rather than for consumption. I am often excited to take advantage of free money from employers and governments in addition to building more passive income sources. After accumulating my first million dollars, I am now embarking on a second journey towards achieving financial independence. On this journey, I will strive to increase my net worth to two million dollars and retire by the age of 48 - Freedom 48. Come along and follow my journey on Facebook, Twitter, Pinterest or Google Plus.



There are 41 opinions expressed on this post.

    1. @GYM, With all these euphoria, I was a bit tempted to join the herd and get in the cryptocurrency action. However, my conscience just couldn’t let me do it. Need to resist….

  1. Oh cryptos and potstocks i wish i jumped on the train earlier this year…. i think they are both really overvalued at the moment but will be interested in jumping into some pot stocks if a pullback occurs. I dont think challenging world currencys will go over so well long term.
    Cheers
    Passivecanadianincome recently posted… 6th Income SourceMy Profile

    1. @PCI, when the government first announced the legalization of pot, I did do some research and wanted to buy some pot growers. However, I don’ do drugs and I consider pot a drug so I couldn’t bring myself to invest in something I don’t believe in. Ethical investing!

  2. Lol I will stay away from it. Like what GYM said, a bit of play money is fine but I’m not really interested in this topic haha. My friend invested a long time ago in 2011 and kept telling me to buy and hold for many years before it got more popular in 2014/2015. I didn’t listen but I don’t have any regrets. Without any knowledge, it’s just a gamble to me. For those who made money, kudos to them!
    fin$avvy panda @ finsavvypanda.com recently posted… 5 Amazing Money Tips From a BillionaireMy Profile

  3. I’m excited to say that I bought my first cryptocurrency the other day. I will own exactly one Etheruem (waiting period is 9 days) with the intent of trading half of it for IOTA (anti-blockchain currency). Hopefully, it won’t go down in value before then. I think there’s nothing wrong with doing some speculation as long as it’s a very small % of your portfolio.

    1. @Menard, with this speculation play, I think that it’s not when you buy, but it’s when you sell. I would be curious to know if it goes up, at what point will you take the profit? If it goes down, when will you throw in the towel? Or you’ll be going down with the ship?

  4. All I can say about this is that I am not going to get myself into this cryptocurrency phase and how everyone wants to get a piece of it. I think that at the end of it people may end up losing a lot more than they thought.

  5. I have heard and read a lot about Bitcoin. I get the allure of the cryptocurrencies but I am not sure i’ll ever get involved. We are at a point where bitcoins are being talked about so much lately that everyone wants a piece of it!

  6. My husband and i just has a huge conversation about Bitcoin! I totally didn’t understand the concept until he explained it in great depth to me. It’s not really an investment I’m interested in but think it’s a cool idea.

    1. @Jeanette, with all the volatility in cryptocurrencies, it’s definitely not an easy decision to decide to either invest in it or not. I am glad that you know that you don’t want to invest in it. We all need to know what is suitable to invest in and what’s not.

    1. @Sarah, I have a similar view too. If I am going to invest in cryptocurrencies, it’ll be with funds that I can afford to lose. For now, I don’t think that I am ready to jump in yet.

  7. I am a long way away from using bitcoins. I’m still learning technology that I need to get a better grasp of other concepts before I worry about virtual currency.

    1. @Rose, virtual or cryptocurrency is still in it’s infancy, only time will tell how far it can go. I’d love to have a crystal ball to see what the cryptocurrency landscape will be like in 5 to 10 years.

    1. @Caryn, at first, it’s also something that’s not very obvious and easy to understand for me too. These currency only exist digitally and there is nothing backing up the value of these currencies except the good faith of mankind.

  8. I was offered a job once and they were going to pay me in bitcoins. I declined because it was so new back then. I can see that as technology develops it has gotten and will get a to be a big thing. I prefer cash money still…Gotta get those groceries 😉

    1. @Kimberly, wow, a job that paid in bitcoin a long time ago. I am really curious to know what if you had accepted to even be paid half of your salary in bitcoin, you’d probably be loaded by now.

  9. I have been hearing a lot about Bitcoin lately. It is interesting to learn more about it. Thanks for the great info.

  10. My husband and his brother have been following the Bitcoin trends – both the rises and the falls. I personally would feel very insecure investing in a currency that is not backed by precious metals or another physical asset. I’m interested to see what happens with Bitcoin over the coming years.

  11. I still prefer investing in physical Gold and silver which have a proven track record of growth for thousands of years. Cryptos are a hype now but I’m not so interested in them!

  12. I have heard the word Bitcoin before but literally had no idea what it was, it is all really confusing! Personally I don’t think it is someting I would participate in, too many risks and I can’t get my head aorund it being code. Great read though and now I know what they are
    Anosa recently posted… How to Beat the January Blues in 2018My Profile

  13. I kind of got interested with Bitcoin but thinking how fast it came up, I was thinking it might go down so easily as well. I find them more of a fad/hype. I prefer investing in stock market, it’s safer because it’s been there for a long time and the money you put in and withdraw are tangible, they also send documents to support the transactions and the company platforms for exchange are existing. Thanks for explaining this trend in a very understandable manner.
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  14. I really don’t understand bitcoin but I am keeping some. A former client paid a value of $34 and after a year it is now $480. I have no plans in trading yet, it is risky and I am not sure what to do.

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