Should I be investing in Bitcoin?

Image Source: Moneycontrol

It’s a great question, although revealing an answer depends more upon other factors – mostly surrounding you and your circumstances. It’s not the Bitcoin itself whatever that is. So, let’s start there.

Bitcoins are blocks of super secure data with no intrinsic value yet are treated like money. Money, let’s be clear, can be anything you want it to be although commonly suggests any unit of tradable or storage of value. Rather like those heavy limestone discs of Micronesia. They too are accepted as units a value, can be traded, and, just like Bitcoin, don’t have to be relocated when adopted by a new owner. They differ substantially in weight although the stone money of Yap possesses a central hole which helps with the physical transportation issue if needed.

So, money doesn’t need to have tangible intrinsic value although could have been with tokens shaped from gold or silver. They could be physically snipped into parts for proportionate worth. When transported in bulk, however, these coins were heavy and an obvious target for robbery. Promissory notes were introduced in lieu and backed up by gold reserves more securely held by a central bank. Again, there was no intrinsic value in the mix of wood and fibrous cotton notes, yet were readily accepted.

After a time, Governments worked out they didn’t need the gold reserves to back up the bank notes; they could simply declare or impose a legal tender. Fiat money. No tangibility required and no intrinsic value yet something with tradable value. Which neatly circles back to Bitcoin. A peer-to-peer electronic cash system underpinned by decentralised blockchain technology. Unlike the pound, Dollar or Euro in your pocket, the centralised powers of monetary policy don’t apply in this independently minded digital universe. It’s become a very attractive form of money.

So, should you be investing in Bitcoin?

That answer, let us remind ourselves, depends more on you, your circumstances, and your financial ambitions than the crypto currency itself. It functions rather well as a unit of tradable value and will continue to do so just so long as people, that’s us, continue to accept it as such. The intangibility aspect, historically evidenced, simply doesn’t matter.

It’s very volatile though. If you accept Bitcoin as a payment, you can’t truly know how much you are being paid next week or what that will be worth next month. Its value fluctuates in a way that more traditional currencies don’t. News articles from the October 2021 era referenced the single unit of Bitcoin then surpassing $63,000. As I write in January 2022, it’s trading just short of $43,000. As you read today, what’s it become now?

Then again, does a trading value of €40,000 matter overly when you bought it at $400 when it was less widely known? Now in the spotlight, it matters greatly today if you paid $60,000 last October. The 1/3rd loss now demands a 50% growth - just to break even. As for any investment, it matters more what you originally paid, than what it’s worth today. Even then, the eternal question arises of should I sell or run with it?

The merits of Bitcoin reference you. You, your circumstances, and your past purchasing decisions, rather than Bitcoin itself. It is what it is and will continue to fluctuate in a way that is unconcerned about you.

Turning to circumstance, if it’s stability in your retirement years you’re looking for, then going all-in almost certainly isn’t the way to go. Then again, if you wanted to speculate or to diversify with a little corner of your wider investments, or to diversify in an alternative asset class, then perhaps it could just be a plan - or not! If you’re unattached, 30-something and of that particular mindset, don’t mind losing everything, then what the hell. Again, it’s more on you than the digital currency world where many other varieties lurk as alternatives.

Like Ethereum presently trading nearer $500 a unit or Ripple where the price of each token is in the region of $0.50 although there are an awful lot of them out there? Or Dogecoin which started out as an online joke referencing a popular internet meme. It’s the favoured currency of the Japanese Shiba Inu dog!

Digital currencies can be a fun thing to own in a way a doughnut shaped chunk of limestone on the island of Yap isn’t. Any fundamental analysis or researched investment strategy is always a plan although an introspective and considered examination of what it might mean to you is usually where you might wish to more successfully invest.

Marius Hampden

January 2022