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I’ve had a slight curiosity recently in regards to the cryptocurrency investment otherwise known as Bitcoin. Year to date, Bitcoin has returned over 1000%, a remarkable figure in comparison to the roughly 20% return in the US markets in 2017. Despite these impressive returns, I have no incentive whatsoever to invest my money into this asset.
- Bitcoin is extremely hard to value-unlike most stocks, bitcoin has value only to the extent that its users agree that it does. Indeed, many sceptics of Bitcoin have criticised the virtual currency for its lack of ‘intrinsic value’ including legendary investor Warren Buffet as well as JP Morgan CEO Jamie Dimon.
- Cryptocurrencies are an asset class I find very hard to understand-the great Warren Buffet once said that ‘you should never invest in anything that you cannot understand’. This was the reasoning behind his passed opportunity to invest in Google prior to its 2004 initial public offering because he couldn’t see a reason why the company would be profitable over its peers. Indeed, this is the main reason why he chooses to avoid investing in technology altogether because he does not wish to expose himself to risks associated with something that he does not fully appreciate or understand. And that, is the main reason why I am staying clear of Bitcoin.
- Bitcoin is a speculative bubble that I wish to be no part of-consider this: The NASDAQ Composite returned just around 500% in just over 5 years before crashing in early 2001. Japanese stocks returned around 300% beginning in the early 1980s before its ‘lost decade’ began. US house prices-the main cause of the worst financial recession since the great depression barely reached the triple digit mark in returns before spectatuarly crashing in 2007-2008. Bitcoin on the other hand, is up 1034% from the start of 2017-end of November 2017. I don’t wish to be invested once this bubble bursts…
- Bitcoin is extremely volatile-you should never invest in anything which you will lose sleep over, and Bitcoin is no exception. The currency has declined more than 50% on eight separate occasions since 2011. When Bitcoin topped $11,000 in mid November, it crashed more than 20% a few days later as several exchanges struggled to handle surging volume. No thank you….
- Regulatory risk-regulators around the world have cast a watchful eye on cryptocurrencies given their checkered history as a means to purchase illicit materials online. Indeed, all it would take would be for one terrorist incident in the US funded by Bitcoin for the US regulators to step in and take action.
What’s your opinion on Bitcoin and are you invested? Let us know your thoughts below!