Quiz!
What are good reasons to invest in Bitcoin? (There may be multiple answers.)
- It is a high-growth investment with low correlation to other investments.
- High growth as its adoption grows.
- Low transaction costs.
- Fast transfers.
- Free from government control.
2 Reasons I don’t Invest in Bitcoin
Bitcoin is a digital currency / cryptocurrency with many benefits over traditional currencies. This article doesn’t discuss these great benefits, but instead brings up reasons to not hold bitcoin and many other digital currencies for investment.
- Just like any other currency, Bitcoin doesn’t generate any value. There are plenty of investments that do generate value, including stocks (companies) and real estate.
- While Bitcoin has benefits over traditional currencies, many countries are working on digital currencies with values tied to their traditional currencies. These currencies will have the benefits of digital currencies with an additional big benefit over Bitcoin: central banks can control the supply of currencies, helping stabilize economies, and preventing recessions such as 2008 from turning into devastating depressions. This could stop Bitcoin from reaching the wide adoption that some people anticipate.
Bitcoin played a big role in learning about digital currencies, and designing digital currencies with values tied to traditional currencies. Yet, as an investment, there is nothing that gives me confidence that it won’t permanently decline by 50%, 90% or 99%, as government backed digital currencies come out.
Quiz Answer:
What are good reasons to invest in Bitcoin? (There may be multiple answers.)
- It is a high-growth investment with low correlation to other investments.
- High growth as its adoption grows.
- Low transaction costs.
- Fast transfers.
- Free from government control.
None of the answers is correct. Specifically:
- Bitcoin has historically been a high-growth investment with low correlation to other investments, but there are good reasons to expect the growth to be reversed into sharp declines, once digital currencies that are tied to traditional currencies come out. Read this month’s article to learn more.
- You can expect adoption to dramatically shrink once there are government issued digital currencies, that have additional benefits.
- Low transaction costs are a benefit of Bitcoin over traditional currencies, but not over traditional digital currencies.
- Same as #3.
- Bitcoin is currently free from government control, providing a benefit for certain uses including some illegal activities, but that is not a reason to hold them as an investment.