When I tell people that I bought some bitcoin, I’ve gotten a number of reactions
1. “You could lose it all.”
This is true. And I don’t recommend investing anything into bitcoin that you wouldn’t be ok with losing. But this is really true for all types of investment. The higher the potential reward, the higher the risk. I actually already had some funds, ~$2,000, which I use for more riskier stock investments. These are stocks that I check once a year and try to pick something that’s trending up and ride the wave to profits. More often than not I actually lose money on these stocks. But I bought Facebook stock last year and it ‘s been doing well this year. So I just took that money and moved some of it into Bitcoin.
2. “Bitcoin isn’t backed by anything.”
This is true too. I agree that investing in bitcoin is more speculation than investing. And Bitcoin is not backed by any company or government. This leads people to believe that there is no intrinsic value in Bitcoin. But the value in Bitcoin is based on the fact that other people want it. This is similar to baseball cards or pieces of art. The cardboard and ink that make up the Honus Wagner worth certainly are not worth the $2M price tag that it fetches. But the fact that people appreciate and want it, make it a valuable item.
Furthermore, there are plenty of investments which aren’t backed by anything more than speculation. Snapchat lost half a billion dollars in 2016 and yet the company is worth $34 billion dollars. That 34 billion dollars was in some ways created out of thin air.
3. “It’s just a bubble.”
Possibly. But it’s been bubbling for five years now and in 2017 it’s been absolutely on fire. People are also saying the same thing about the current bull stock market. Yet people continue to bet their retirement funds on it. The important thing is to approach bitcoin investing like any investment. Understand the risk of loss and protect yourself by diversifying all your investments and your investment in cryptocoins. I have only a small percentage of my net worth in crypto currency (way less than 1%) and I am trying to diversify my crypto holdings beyond just Bitcoin to other altcoins. I’ll post up my crypto portfolio in a later post.