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If you invested in Bitcoin back in 2009, congratulations. For the rest of us, there are a lot of risks to consider.
Everybody is talking about Bitcoin! Seriously, everybody!!!.
Your plumber? They’re talking to you about Bitcoin while they’re under your sink, fixing the pipes. Your dog? They’re talking about Bitcoin, but you can’t understand them because they’re, you know, a dog. Your doctor? They’re talking to you about Bitcoin while they’re performing surgery to remove your appendix, but obviously you’re asleep so you don’t hear them either. Feel better soon. We hope you get the flowers we sent!
All this Bitcoin jibby-jabber probably leaves you wondering whether you should be spending some of your physical coins on Bitcoins, or whether you should run away as fast as possible. BUT to give you some insight on that, we talked to even more people who are talking about Bitcoin. And unlike your dog, plumber, doctor, they actually know stuff about it.
Okay, so what is Bitcoin?
Now it’s time to answer the question that your parents keep asking you, that you sort of pretend to know the answer to, even though you pretty much don’t: What is Bitcoin?
Obviously, the short answer would be “internet money.” It’s money, like how a dollar is money, and it’s all on the internet. But the real answer is just a teensy bit more nuanced than that. As certified financial planner Billy Funderburkexplained to us: that
“Bitcoin is a form of digital currency that utilizes cryptography to regulate how and when units are created as well as to safeguard secure transfer of funds. Bitcoin is just one of many so-called cryptocurrencies. Ultimately, the increasing value of Bitcoin comes from a belief that the demand for bitcoins will increase over time. This belief is rooted in the idea that it will replace many government-sponsored currencies for more and more transactions.”
Bitcoin functions based on the “blockchain” technology created for the maintenance of its ledger. Bitcoin was created in 2009 by a person calling themselves Satoshi Nakamoto. (Nakamoto’s real identity has yet to be uncovered.) People can “mine” Bitcoin through a process that basically has a computer solve a series of really difficult math problems. Once someone owns Bitcoin, they are provided a password to access it on the blockchain. Lose the password, and you lose your Bitcoin. Unlike American dollars, Japanese Yen, or any other kind of traditional, country-based currency, Bitcoin has no government body controlling it. It’s blockchain or bust. For some people, the lack of a regulating body means they see Bitcoin (and other cryptocurrencies that have followed in its wake) as the future of money. For others, the lack of control means they see Bitcoin as, at best, a collective delusion, and, at worst, a total scam.
So should you invest?
Do you own a time machine capable of going back to 2009? Then if the answer is yes, absolutely, go back and get as much Bitcoin as you can—but you didn’t need us to tell you that, as you’ve already bought all of Earth and are ruling us as a king. Or at least you would be if you had cashed out last December 2017.
If you don’t have a time machine, the answer is a little less clear. “First, we should discuss whether you would be investing or speculating,” Funderburk suggested. “Due to the volatile nature of the price as well as the unlikelihood of Bitcoinreplacing a national currency, it is my view that the price is behaving like a speculative bubble. Should a person invest, I would suggest investing only a small portion of your money and have an exit strategy.” When Funderkurk talks about the “volatile nature” of Bitcoin’s price, he’s not playing around. The original Bitcoins mined in 2009 were worth about six cents each, and it’s value peaked in December 2017 at nearly $20,000 before losing almost half its value by mid-January 2018. That’s a roller coaster ride.
Sure, owning a $10,000 Bitcoin that you bought for six cents is still a ridiculous return on your investment. But a currency that loses almost half its value in only a month? That’s as volatile and as risky as an investment can get. There is one benefit to all that volatility though, and it’s that there are fairly easy profits to be found via day trading.
“It may be too late to simply buy Bitcoin and wait a year for a 10,000% return on your investment,” John Omar (@johnomarkid) cryptocurrency trader and blogger at Chain Operator, told us. “However, it’s not too late to earn serious profit day trading Bitcoin and other cryptocurrencies. Day traders take advantage of the daily price volatility in cryptocurrencies, where the price often swings 5-10% in a few hours. Earning just 1% profit daily on a $1000 investment for a year and compounding the gains will land you $37,000.”