We all love the idea of fast money. After all, wouldn’t it be more fun to become a billionaire overnight versus having to work your tail off for several years? Well, sure it would be nice, but fast money doesn’t come easy and the allure of it causes some folks to make some very stupid investing mistakes.
Cryptocurrency has been a hot topic this past year. In particularly Bitcoin… It has been as high as $20,000, but is $6,473 as of the writing of this article. Many who bought in were hoping to become a millionaire or billionaire off of the cryptocurrency. Others truly bought in because they love the idea of an unregulated currency that is free from government meddling.
Legendary investors Warren Buffett and Charlie Munger have described cryptocurrency as a bad mistake… something that isn’t going to end well. Others have said that Mr. Buffett and Mr. Munger are simply too old to understand the technology. They will both admit that technology isn’t their expertise, but what qualifies as a good investment certainly is.
I believe both Buffett and Munger are correct in saying that Bitcoin isn’t an investment. An investment is something that has intrinsic value and has potential to produce a profit on it’s own. An apartment building is an investment because you collect rent and pay expenses. Ideally the rent is more than than the expenses and you have a profit at the end of the year.
Buying a business or a dividend paying stock would be an investment. Bitcoin isn’t.
However, I do believe there is a slight case to be made for the value of Bitcoin increasing. If you look at Bitcoin as a type of money then the case could be made that it will increase in value.
Money derives it’s value from supply and use. If more and more people prefer to use Bitcoin to pay for goods and services then more vendors and retailers will begin to accept it as payment. If this happens, then it is very well possible that Bitcoin goes up in value over time.
My personal opinion is that this isn’t likely. Bitcoin competes with other cryptocurrencies and it has a long way to go before it will be accepted mainstream as a form of payment. If that was to happen, you can also bet that the government will find a way to regulate it, which could hinder it’s value.
With all that said, if you want to speculate on Bitcoin or any other crypto, then go for it. But understand it is a speculation and not an investment. With a speculation, you only use money you could afford to lose if it went to zero.