Until the end of January, the virtual currency Bitcoin was up around 5000% in the past year. That means if you had invested $10,000 a year ago in bitcoin, you’d be up almost half a million dollars.
So it’s no wonder so many people are talking about bitcoin these days.
I also understand the reasons why some people like bitcoin. For some businesses it saves them money to accept bitcoins as they pay no exchange fees when transferring money. Some people see it as an alternative to the US Dollar and other “government currencies”.
But as far as a currency or an investment goes, sorry but bitcoin does not cut it for me. Here’s why:
When I choose to put my money into a currency, my top 3 concerns would be acceptability, safety and stability.
Does bitcoin meet any of those 3 concerns? Let’s see:
Very few businesses are accepting bitcoin as a currency or medium of exchange. It is very difficult to carry out a transaction with bitcoins. But that problem (even if it gets resolved) is just the tip of the iceberg…
Bitcoin is extremely volatile in its price movements. The crypto-currency has gone up and down by approximately 5% or more 116 times in the past year. The U.S. dollar has not done that even once.
This instability means I wouldn’t know how much my money would be worth tomorrow, let alone a month from now.
And what about safety?
Recently one of the larger bitcoin exchanges, Mt. Gox, stopped all customer withdrawals.
Now, this problem may be temporary, it may not be. But so what? Why would you want to take such huge risks with your hard-earned cash by putting it into an account where you may never see your money again?
It seems pretty clear to me that bitcoin fails on that basis too.
As an investment, I always choose markets which are ignored and hated by the crowd. As Warren Buffett once said, buy when others are fearful and sell when others are greedy. On this basis, bitcoin fails this test as well.
There are better things out there to have one’s money in. Something with actual intrinsic value: like gold, silver, platinum – and let’s not forget stocks in top quality businesses.
In the last few days Bitcoin broke its December support at its $450 lows. This is very bad as it has triggered more selling pressure, and probably more to come.
Like all bubbles in history, this will be no different. It will end ugly…