I personally believe Bitcoin is mislabeled. It is neither an investment, nor a currency. Bitcoin is a digital asset that is worth whatever someone is willing to pay for it. In some sense, the same is true for gold, art, currency exchange, and even the P\E for stocks. The negatives for Bitcoin are it’s short history, volatility, digital vulnerabilities, high transaction expense, complexity and lack of physicality. Bitcoin’s positives are its traction, limited supply, and lack of government intervention. I have owned Bitcoin, but have none now as I needed the cash. I can see a case for maintaining a small position in Bitcoin, but the same could be said for gold.
Very speculative, there’s nothing backing it. It’s similar to the Dutch tulip bulb bubble of the 1600’s. At it’s height, one bulb was worth as much as the value of a mansion on the Amsterdam Grand Canal.
I consider it speculation. It is unstable and extremely volatile. On the other hand, you can’t deny the long-term growth since its creation in 2009. For that reason, I “invested” about 3% of my portfolio a few years ago in my Roth via a limited partnership (LP) managed by Fidelity (the only organization that I would trust at that time). Originally, my goal was to leave it to my beneficiaries and had disregarded that fund (as being part of my portfolio from a retirement asset viewpoint). When Fidelity’s spot bitcoin ETF (FBTC) became available, I swapped out of the LP (which was charging a 1% expense ratio) and purchased the equivalent amount of FBTC (at 0.25% ER). At first, the Fidelity website denied the trade due to the account categorization being “growth and income.” I fixed that by recategorizing it to “most aggressive,” made the purchase, and went back to “growth and income” again. I guess they want to make sure that you are aware that the purchase of such funds is speculative in nature since all kinds of warnings pop up when you change to “most aggressive.”
Since the original purchase, the growth of bitcoin has increased that percentage from the original 3% of my portfolio to almost 9%, making it difficult to ignore. It didn’t have quite that much gain in that I did buy an extra bitcoin during one of the downturns. More recently, I attributed that FBTC fund to be part of my equity allocation, maintaining my 70/30 ratio with that inclusion. While my plan is still to leave it to my beneficiaries (who know that I’ve got this speculative holding), I also told them that if bitcoin hits $500K, I’m cashing out and spending it.
Speculation ? I tried to buy IBIT for only 1% of my rollover IRA, but the fidelity trading bot refused the trade, saying my portfolio was not categorized as ‘Most aggressive’.
It’s speculation, but I bought $2k of bitcoin years ago and moved it to the new bitcoin ETFs because dealing with bitcoin is not easy. Even Coinbase’s interface is difficult. I think the original run up, which made people rich fast, won’t happen again. I haven’t even doubled my nonmoney yet.
I agree with most of the other comments. Bitcoin seems to be a solution in search of a problem. It certainly doesn’t fit the classic definition of a currency and it’s much too volatile to be a reliable method of payment for commerce and is rarely actually used as a method of payment. Most transactions are one speculator selling to another and hoping to be in the right position when the music stops.
I’m not saying that future cybercurrencies won’t be useful, but they will need to be more like regular currencies and, most likely, be backed by governments.
To a considerable extent the dollar is already an electronic currency. I rarely use actual cash and my liquid assets are just entries in the databases of various financial institutions.
Bitcoin was originally promoted as an alternative to money, but it is inferior to established currencies as a store of value and a medium of exchange. (It is highly volatile in price, isn’t widely accepted for payments, and is far more expensive to transact in than ordinary currency.)
Now people say, well, if it isn’t good as money, at least you can use it as an investment. As an investment, however, it looks sort of like a Ponzi scheme – people who cash out are paid with the money from newcomers who invest in response to price increases (with no revenues or earnings to fund the payouts).
But unlike a Ponzi scheme, there is a fundamental driver of demand for Bitcoin – it is supposed to be usable by criminals and state actors to make payments that cannot be traced by law enforcement. This feature of Bitcoin makes it genuinely valuable to criminals and underpins demand. It might be sufficient to turn Bitcoin into an investment asset, if governments continue to allow Bitcoin and similar products to perform their function of facilitating illegal commerce,
This week’s news that the FBI was able to recover most of the Bitcoin from the Colonial Pipeline ransomeware attack should give pause to those who rely on Bitcoin to make untraceable payments. In today’s world, where banks and other financial institutions are under heavy and growing government pressure to fight money laundering, it is hard to believe that Bitcoin and similar schemes that faciltate untraceable payments will be allowed to continue unrestricted.
So, I would have to say that Bitcoin is a speculation, and not an investment.
Bitcoin has no physical manifestation, has no intrinsic or industrial value, pays no dividends, and is only worth what someone else is willing to pay for it at a given time. How can it be an investment?
Sounds like equities. I know we say that stock is backed by something, but that’s just an excuse. It’s really just a collective hallucination. It’s all about belief. We argue about religion, we see that systems can change when people stop believing in the rules that underpin governments, but we all continue to believe in money.
I’d also point out there is a great book (for the mathematically inclined) titled Mathematics of Quantum Computing by Wolfgang Scherer (ISBN: 978-3030123604) which explains on page 323 exactly how discrete logarithms can potentially be broken by quantum computing (rendering the bitcoin signature insecure).
IBM promised last year that they would have a 1000 qubit Quantum computer available by 2023, so the quantum computational power is expanding an an exponential pace.
A team at Xanadu in Canada has announced a room temperature quantum computer based on light photons that has the potentially to become widely available.
Given all these potential threats to Bitcoin security, there is a small but not negligible risk that someday Bitcoin may be rendered insecure without an institution like the Federal Reserve maintaining the value of the digital currency. It’s just waiting for bad things to happen in my humble opinion.
QCs promise the power to break all of the cryptographic algorithms which underpin internet security, not just cryptocurrency ones. Fortunately, sufficiently capable quantum computers are still like exotic new battery technologies: always on the horizon. Until I can drive it, am deeply skeptical.
I’m fine calling it an investment. The market has gone through huge booms and busts but remains with a respectable market cap near $1 trillion. To me, that’s beyond just some random speculative non-sense bubble. I don’t know what the future holds nor am I smart enough to know if it’s legit, but allocating 2-3% to it in a portfolio is probably fine. It’s not worse than gold, in my opinion.
Everyone who doesn’t own it (like me) says “speculation” and every owner says investment. Hindsight being what it is, I’m sure we all wished we had bought it years ago. Ordinarily I would put it in the speculative category, but I think it has the potential to be gold-like and serve as a hedge against central bank’s rampant monetary profligacy. What I find most interesting about Bitcoin is that there can only be 21,000,000 coins ever in existence and no more.
I own some alt coin that I received a few years ago from an online promotion, yet I still say it is speculation. I see it in the same light as my Pokemon cards, stamps, and HD-DVD collection. And best of all, it takes up much less room.
On the other hand, buying individual stocks “for the long run” might not be any more sensible though. Fred Schwed (Where are the Customers’ Yachts?) wrote anecdotally of “a great and sagacious financier.” When he dies, “the executors go through the strongbox [and find], tucked well away in the back, bundles of the most hopeless securities whose very names have been long since forgotten. Although these executors will never leave an estate worth a tenth as much as this one, they gaze at the bundles with wonder and amusement. ‘Golly,’ they say, ‘whatever could the old man have been thinking of to get stuck with these cats and dogs?’”
Maybe one day my executors will go through my hard drive and find tucked away a cryptocurrency wallet and say “what could the old man have been thinking?” If not, they will surely say it of my HD-DVD collection!
I personally believe Bitcoin is mislabeled. It is neither an investment, nor a currency. Bitcoin is a digital asset that is worth whatever someone is willing to pay for it. In some sense, the same is true for gold, art, currency exchange, and even the P\E for stocks.
The negatives for Bitcoin are it’s short history, volatility, digital vulnerabilities, high transaction expense, complexity and lack of physicality. Bitcoin’s positives are its traction, limited supply, and lack of government intervention.
I have owned Bitcoin, but have none now as I needed the cash. I can see a case for maintaining a small position in Bitcoin, but the same could be said for gold.
Very speculative, there’s nothing backing it. It’s similar to the Dutch tulip bulb bubble of the 1600’s. At it’s height, one bulb was worth as much as the value of a mansion on the Amsterdam Grand Canal.
I consider it speculation. It is unstable and extremely volatile. On the other hand, you can’t deny the long-term growth since its creation in 2009. For that reason, I “invested” about 3% of my portfolio a few years ago in my Roth via a limited partnership (LP) managed by Fidelity (the only organization that I would trust at that time). Originally, my goal was to leave it to my beneficiaries and had disregarded that fund (as being part of my portfolio from a retirement asset viewpoint). When Fidelity’s spot bitcoin ETF (FBTC) became available, I swapped out of the LP (which was charging a 1% expense ratio) and purchased the equivalent amount of FBTC (at 0.25% ER). At first, the Fidelity website denied the trade due to the account categorization being “growth and income.” I fixed that by recategorizing it to “most aggressive,” made the purchase, and went back to “growth and income” again. I guess they want to make sure that you are aware that the purchase of such funds is speculative in nature since all kinds of warnings pop up when you change to “most aggressive.”
Since the original purchase, the growth of bitcoin has increased that percentage from the original 3% of my portfolio to almost 9%, making it difficult to ignore. It didn’t have quite that much gain in that I did buy an extra bitcoin during one of the downturns. More recently, I attributed that FBTC fund to be part of my equity allocation, maintaining my 70/30 ratio with that inclusion. While my plan is still to leave it to my beneficiaries (who know that I’ve got this speculative holding), I also told them that if bitcoin hits $500K, I’m cashing out and spending it.
Speculation ? I tried to buy IBIT for only 1% of my rollover IRA, but the
fidelity trading bot refused the trade, saying my portfolio was not categorized as ‘Most aggressive’.
It’s speculation, but I bought $2k of bitcoin years ago and moved it to the new bitcoin ETFs because dealing with bitcoin is not easy. Even Coinbase’s interface is difficult. I think the original run up, which made people rich fast, won’t happen again. I haven’t even doubled my nonmoney yet.
A very, very speculative investment.
BTC is everything I don’t understand about money coupled with everything I don’t understand about computers. So speculative investment?
😉No!, scary investment!! doesn’t seem to be regulated. Don’t invest in anything you don’t understand!
I think the current events has shown it has been adopted as a speculative asset, and not really a stable currency used for transaction
I agree with most of the other comments. Bitcoin seems to be a solution in search of a problem. It certainly doesn’t fit the classic definition of a currency and it’s much too volatile to be a reliable method of payment for commerce and is rarely actually used as a method of payment. Most transactions are one speculator selling to another and hoping to be in the right position when the music stops.
I’m not saying that future cybercurrencies won’t be useful, but they will need to be more like regular currencies and, most likely, be backed by governments.
To a considerable extent the dollar is already an electronic currency. I rarely use actual cash and my liquid assets are just entries in the databases of various financial institutions.
Bitcoin was originally promoted as an alternative to money, but it is inferior to established currencies as a store of value and a medium of exchange. (It is highly volatile in price, isn’t widely accepted for payments, and is far more expensive to transact in than ordinary currency.)
Now people say, well, if it isn’t good as money, at least you can use it as an investment. As an investment, however, it looks sort of like a Ponzi scheme – people who cash out are paid with the money from newcomers who invest in response to price increases (with no revenues or earnings to fund the payouts).
But unlike a Ponzi scheme, there is a fundamental driver of demand for Bitcoin – it is supposed to be usable by criminals and state actors to make payments that cannot be traced by law enforcement. This feature of Bitcoin makes it genuinely valuable to criminals and underpins demand. It might be sufficient to turn Bitcoin into an investment asset, if governments continue to allow Bitcoin and similar products to perform their function of facilitating illegal commerce,
This week’s news that the FBI was able to recover most of the Bitcoin from the Colonial Pipeline ransomeware attack should give pause to those who rely on Bitcoin to make untraceable payments. In today’s world, where banks and other financial institutions are under heavy and growing government pressure to fight money laundering, it is hard to believe that Bitcoin and similar schemes that faciltate untraceable payments will be allowed to continue unrestricted.
So, I would have to say that Bitcoin is a speculation, and not an investment.
You said orginally bitcoin was promoted as an alternative to money? I find that hilarious.
Excellent article. Thanks
Bitcoin has no physical manifestation, has no intrinsic or industrial value, pays no dividends, and is only worth what someone else is willing to pay for it at a given time. How can it be an investment?
Sounds like equities. I know we say that stock is backed by something, but that’s just an excuse. It’s really just a collective hallucination. It’s all about belief. We argue about religion, we see that systems can change when people stop believing in the rules that underpin governments, but we all continue to believe in money.
There is an excellent write-up regarding the potential threat that Quantum computers poise to making Bitcoin signatures insecure from Deloitte here:
https://www2.deloitte.com/nl/nl/pages/innovatie/artikelen/quantum-computers-and-the-bitcoin-blockchain.html
I’d also point out there is a great book (for the mathematically inclined) titled Mathematics of Quantum Computing by Wolfgang Scherer (ISBN: 978-3030123604) which explains on page 323 exactly how discrete logarithms can potentially be broken by quantum computing (rendering the bitcoin signature insecure).
https://www.amazon.com/Mathematics-Quantum-Computing-Wolfgang-Scherer/dp/303012357X/
IBM promised last year that they would have a 1000 qubit Quantum computer available by 2023, so the quantum computational power is expanding an an exponential pace.
https://www.sciencemag.org/news/2020/09/ibm-promises-1000-qubit-quantum-computer-milestone-2023
A team at Xanadu in Canada has announced a room temperature quantum computer based on light photons that has the potentially to become widely available.
https://phys.org/news/2021-03-xanadu-programmable-photonic-quantum-chip.html
Given all these potential threats to Bitcoin security, there is a small but not negligible risk that someday Bitcoin may be rendered insecure without an
institution like the Federal Reserve maintaining the value of the digital currency. It’s just waiting for bad things to happen in my humble opinion.
How can we invest in quantum computing?
QCs promise the power to break all of the cryptographic algorithms which underpin internet security, not just cryptocurrency ones. Fortunately, sufficiently capable quantum computers are still like exotic new battery technologies: always on the horizon. Until I can drive it, am deeply skeptical.
I’m fine calling it an investment. The market has gone through huge booms and busts but remains with a respectable market cap near $1 trillion. To me, that’s beyond just some random speculative non-sense bubble. I don’t know what the future holds nor am I smart enough to know if it’s legit, but allocating 2-3% to it in a portfolio is probably fine. It’s not worse than gold, in my opinion.
People have considered gold valuable for millennia. Turn off electricity or cut the undersea cables we need for the Internet, and bitcoin is gone.
It has no intrinsic value, so it’s not an investment. And it’s too volatile to be a (useful) currency. It’s speculation.
Agreed, Adam. To your factors I might add that it requires the Greater Fool Theory to get out with a profit, so definitely speculation.
Everyone who doesn’t own it (like me) says “speculation” and every owner says investment. Hindsight being what it is, I’m sure we all wished we had bought it years ago. Ordinarily I would put it in the speculative category, but I think it has the potential to be gold-like and serve as a hedge against central bank’s rampant monetary profligacy. What I find most interesting about Bitcoin is that there can only be 21,000,000 coins ever in existence and no more.
I own some alt coin that I received a few years ago from an online promotion, yet I still say it is speculation. I see it in the same light as my Pokemon cards, stamps, and HD-DVD collection. And best of all, it takes up much less room.
On the other hand, buying individual stocks “for the long run” might not be any more sensible though. Fred Schwed (Where are the Customers’ Yachts?) wrote anecdotally of “a great and sagacious financier.” When he dies, “the executors go through the strongbox [and find], tucked well away in the back, bundles of the most hopeless securities whose very names have been long since forgotten. Although these executors will never leave an estate worth a tenth as much as this one, they gaze at the bundles with wonder and amusement. ‘Golly,’ they say, ‘whatever could the old man have been thinking of to get stuck with these cats and dogs?’”
Maybe one day my executors will go through my hard drive and find tucked away a cryptocurrency wallet and say “what could the old man have been thinking?” If not, they will surely say it of my HD-DVD collection!