Should you invest in Bitcoin is a common question posed by many who have witnessed the cryptocurrency’s rollercoaster ride over recent years.
Each Bitcoin is now worth about $30,000 after a year of gains for the cryptocurrency, but the last five years have seen it swing from $3,000 to $65,000, which shows the seesaw it’s been on. That has led not just to a surge in Bitcoin investing but also in Bitcoin mining.
I have tried my luck at it, albeit with rather small sums compared to some, but it taught me that seeing it as an investment is the wrong course of action for most. Unless you really, really know what you are doing, then it’s a gamble, akin to playing the tables in Vegas.
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That means it really should be viewed as something only to dabble in if you can afford to lose that cash, so something to have fun with rather than truly invest in. That’s my view, and you may disagree, but here’s why I think so.
Why Bitcoin is closer to gambling than investing
When you invest in the stock market or in commodities you can at least do some research to help inform your decision. How has this fund manager performed? What is this company’s growth plans? Or, what do experts think will happen to the price of gold?
These are all questions you can answer using research to help inform you of potential outcomes. You can also get financial advice from experts who know the markets and the system.
Of course, most investors know that there is always the risk of their investment tanking due to big world events such as COVID-19, or due to more localized or company-specific issues.
Yet few stocks or commodities have experienced the white-knuckle ride of Bitcoin, and that propensity for it to move suddenly, sometimes seemingly with no warning, is why it is so much harder to predict, and why it is closer to gambling than investing in my view.
One reason Bitcoin is hard to predict is because the mechanics behind it are so complex that most people don’t understand them and therefore don’t have the same knowledge they have of more traditional investments.
I suspect die-hard crypto experts who do nothing but study Bitcoin and other similar currencies such as Ethereum will disagree with me, but this article isn’t aimed at them, but at the less-well-informed majority.
My Bitcoin loss
A few years ago when everyone seemed to be talking Bitcoin up during one of its highs, I bought $300 of it. I saw it rise to about $500, then drop suddenly, only to go back up again.
After a few months later, I withdrew it all at a loss of $50. I could swallow a $50 hit and I saw the experience as a bit of fun to see what would happen to the $300.
The problem is, I had no idea why it was going up or down and saw no way to even remotely forecast which way it would go. I didn’t like the feeling that I had no control at all.
Don’t get into Bitcoin unless you understand the risks
Bitcoin is having a good 2023, with its value up 75% year-to-date. That may encourage some people to try their luck.
I say go for it if you want to have some fun, but only with money you can afford to lose, unless you really consider yourself a cryptocurrency expert.
But please beware the many companies out there trying to sell you a Bitcoin “investment” as a sure-fire way to make money. You may get lucky but you may as easily get burnt.
Whether you agree or disagree, feel free to tweet me @guyanker.
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