If you’ve been paying attention to the talking heads lately, you’ve probably heard something about the phenomenon that is Bitcoin. Or worse, you didn’t hear about Bitcoin from the news—you heard about it from your neighbor down the street or your friend’s friend who is “making a killing” in this new age digital asset. No matter how you may have heard about it, Bitcoin is making headlines, and it’s time we talk about it.
Before I begin discussing my reasons for not investing in Bitcoin, I must remark that Bitcoin’s rise is remarkable…and yes, I’m like many other people who look back to when Bitcoin was dirt cheap and kick myself. Hindsight is always 20/20. However, as this digital currency continues to skyrocket, I fear that greed is now taking over the trade…and some people are piling in because they view it as a chance to get rich. So, consider this article my signal flare to warn you off before you leap into the fray.
Reason 1: It’s not wise it invest in something you cannot explain.
Yes, I do know that many investors own portfolios with allocations they cannot explain. That is not what I mean. What I mean is— do you speak cryptocurrency? Lord knows I can’t. Nor do I feel comfortable in articulating what a blockchain is… which is the technology that makes Bitcoin possible. But, that’s not what I mean either.
Here’s the rub- If you understand something, you have a greater chance of sticking to your strategy through thick and thin. When you have no idea what you actually OWN…or WHY you should actually own it—-how do you expect to hang on if it crashes by 80% or more? Through what lens will you see the crash? Is it normal? Or, is it Armageddon?
Reason 2: You shouldn’t invest unless you can answer—How much? How long? What’s my goal? What’s my exit?
As I’m writing this, I’m timestamping the price of 1 Bitcoin at $9,537.06.
Perhaps this isn’t a fair comparison, but I’m going to use it anyway: Consider how you would approach investing in XYZ company that has each share of common stock now trading $9,537/share. There are no dividends. There is no board of directors or profit/loss statements to peruse. How much of your savings are you willing to put into an investment like this? If you looked at the returns for the last year to justify your answer, you just broke the cardinal rule of investing:
Past performance is no indication or guarantee of future results.
Reason 3: Call me a pessimist, but when ads like this start running— I get nervous.
Reason 4: 900% returns do not a good investment make.
I know what you are thinking…
“Michael, you are crazy. Isn’t the whole point of investing to get a return?”
Actually, the point of investing for most of us is so that you are able to reach your financial goals. Yes, we absolutely do want to have return on our money. But, at what risk? A large percentage of people who seek out professional advice are doing so because they want to retire from full time employment someday. For some, that someday is much, much closer than they care to admit. Ask yourself, how many years of saving would it take to recover from a big crash in a speculative investment such as this?
Reason 5: Fear of Missing Out (FOMO) is a dangerous drug.
I initially planned to submit this article to you prior to Thanksgiving because I had a hunch that many Thanksgiving conversations would find themselves walking down Bitcoin lane. However, I decided to hold off—mostly because I figured people may have MORE questions after Thanksgiving than before.
I wasn’t wrong.
Apparently, Josh Brown has sourced that over 100,000 Coinbase accounts were opened over the weekend. And—it’s been also noted by Brown that there are now more Coinbase accounts than there are brokerage accounts at Charles Schwab!
Could this be a mania? Many of the telltale signs are there. This is the part where social media and financial pundits will rarely have a day without feeding those looking for their Bitcoin fix. Speculators (a-hem Investors) will burn data usage on their smartphones checking their accounts to see how high it will go…or worse, make sure their “coins” are still there. And lastly, someone younger than you will make you feel like a buffoon for not “getting” that this is new age revolution that’s going to cure world hunger…or something equally as absurd.
Noise. It’s all noise.
Yes, I do think we are on the doorstep of a potentially new asset class. The Blockchain technology is fascinating, and the uses of it seem to be limitless at the moment. What an exciting time to see some of these changes take place—and how they will impact our future! Does this mean you should be risking your life savings? Absolutely not.