If you follow the financial news at all, you can’t help but notice that BitCoin continues to reach new highs. Should you be “investing” in BitCoin?
BitCoin–created less than ten years ago by an as yet anonymous person in the Far East–has become all the rage in the financial markets. The BitCoin “market” is completely unregulated and is not monitored or protected by any government.
If BitCoin were to fall from its current high of about $9,000, to $10, an “investor” would lose almost everything. Given the high risk of holding BitCoin, I would categorize keeping any funds in BitCoin as pure speculation. What drives the value of BitCoin today is simple supply and demand. Since the underlying algorithm that “mines” BitCoin is fixed and only allows for slow BitCoin “currency” growth, an increase in demand can cause the value to jump. Likewise, if the investors head for the doors, you could lose everything.
Another factor driving the BitCoin stampede is Wall Street’s introduction of derivative contracts built on BitCoin. To put this in perspective, think of the housing market meltdown in 2008. Rather than a piece of real estate, the underlying asset in this case is a cyber-currency that could disappear overnight. If you can believe it, it will be vastly more risky.
My advice for the typical investor is to stay clear of BitCoin unless you are prepared to lose all of the real dollars used to purchase them.