Your Financial Fitness - Is Bitcoin a Good Investment or Just Speculation?

If you don’t already know, Bitcoin is a crypto currency released in 2009. Bitcoin’s are earned from computer mining systems that run through complex algorithms and once a specific string of code is deciphered, the system rewards you with bitcoin. 

The value of Bitcoin partially comes from the fact that there’s a finite amount of Bitcoin that can be mined - 21,000,000, specifically. This is similar to the US dollar on the gold standard, where only a finite amount of gold exists. The value of bitcoin tends to increase as it gets more time consuming and more difficult to mine - the more bitcoins in existence, the harder the algorithms are for the computer to solve, driving up the cost to mine more bitcoin. 

But does bitcoin have value? Yes and no. It has a basic value because people spend a lot of time and money mining bitcoins. If people invest their own resources for bitcoin, they want a return on investment. This implies SOME value. There’s also some value in what people will exchange for bitcoin. Since there’s a limited number of bitcoins to be mined, the scarcity also drives some perceived value.  

This isn’t much different than the US dollar, where we give $1 the value of $1…except this $1 is subject to government manipulation, inflation, and regulation.While it’s no longer backed by gold, it’s backed by our entire economy, what it produces, and the dollar’s perceived value in relation to other items. Now the US dollar's value is still tied to the US economy, our laws, and our government (for better of worse, lol). The US dollar doesn't have its entire value because we as people give it value - it has a very strong foundation of an income-and-product producing nation behind it. Bitcoin, on the other hand, doesn't really produce anything - its value is merely on what we, the people, associate it with, and the benefits of having a decentralized currency without regulation. There is no longstanding country behind it, it doesn't supply anything, and it doesn't produce anything. However, Bitcoin also has it’s advantages - it’s not subject to government control and manipulation and it’s entirely decentralized. It’s totally anonymous. Never have to pay foreign exchange fees. HOWEVER, there are no refunds. There is no regulation if something happens or if someone steals your coins….oh yeah, and these insanely wild price increases we’ve all seen. 

A relatively new currency is a very high risk, high reward strategy - you could get a huge payout or the values could drop 50% in a week. The volatility of the currency makes it extremely risky. Will Bitcoin will be around for the foreseeable future? During political turmoil and global uncertainty, people may see a safe haven in cryptocurrencies. Remember, If you want to invest, invest only what you can afford to lose. But, I wouldn’t necessarily call this an investment…more like high risk cryptocurrency speculation. 

We all have a different tolerance for risk. When you drive by a vacant lot what do you see? Some will see a vacant lot, others may see an apartment building. It's different for everyone. Do your research. There are many different opinions, theories, data resources as well as professional money managers that can help you navigate your way around cryptocurrencies.

Two rules of thumb I use when considering investments. NEVER, Make an Investment Decision Based on Emotion and 

Never Invest More Than You Can Afford to Lose.

While the number of merchants who accept cryptocurrencies has steadily increased, they are still very much in the minority. For cryptocurrencies to become more widely used, they have to first gain widespread acceptance among consumers. However, their relative complexity compared to conventional currencies will likely deter most people, except for the technologically adept.

Donald Grandy

Precision Nutrition Certification - Pn1

Sport and Exercise Coach

dongrandy@gmail.com

*This content is strictly for informational and educational purposes only. It is not intended to provide financial or investment  advice or to take the place of investment advice from a professional financial manager. All viewers of this content are advised to consult their financial or other qualified investment professionals regarding specific financial questions.