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So I Bought Some Bitcoin. Yes, I am Excited. No, I Do Not Think I Will Get Rich.

A fever has gripped the United States. Nay, the World. But this isn’t your typical winter illness. Instead, this fever is about a certain digital currency, otherwise known as cryptocurrency, called Bitcoin.

Bitcoin is on the tip of everyone’s tongue. From big Wall Street investors to your family friends, everyone either wants in or says that it is a bubble and a waste of time. But who is right? Neither side knows for sure, so last week, I decided to see what the hype was all about.

I bought $100 of Bitcoin and I don’t care what you think

In the last month, Bitcoin (BTC) has increased in value by about 120%. In the last year, it is up 2,000%.

That is insane.

The current price as of this writing (December 16th) has spiked again to over $18,500. In any given day, the price can fluctuate thousands of dollars, leading to a roller coaster ride of emotions if you own any Bitcoin.

This volatility is part of the reason many of the biggest names in finance doubt it’s value.

Jamie Dimon, CEO of JP Morgan Chase, has called it a fraud, and said that if you are “stupid” enough to buy it, you’ll pay the price one day. Warren Buffett warned investors to “stay away” from it, calling it a “mirage”.

But I don’t care what they have to say. Sure, they are two of most powerful leaders in finance, but what do they know? (A lot, but that is besides the point.)

After conversation, some research and temporarily forgetting I am an index-fund-only type of investor, I purchased $100 worth of Bitcoin.

$100 bought me a whopping 0.00556985 BTC.

I did this out of sheer curiosity, fully prepared for the roller coaster ride that awaits me.

Roller Coaster

So… What is a Bitcoin?

Bitcoins are a form of cryptocurrency, or digital money. Meaning, unlike other currencies, it cannot be withdrawn from an account in the form of physical money.

It is 100% digital.

Some retailers, such as on Overstock, Expedia and Newegg, are beginning to accept it as a form of payment. However, given the price volatility, many view it more as an asset instead of a currency.

Consider this example of using Bitcoin to buy goods or services: Today you buy a $500 laptop on Newegg using your Bitcoin. Tomorrow, Bitcoin’s price skyrockets, doubling overnight. That $500 laptop now feels like it cost you $1,000. On the other hand, the price could drop in half and you would have landed a deal.

Given the unpredictable nature of Bitcoin, either can happen and no one can predict it.

If Bitcoin were to ever stabilize, there would be potential in its use as a currency. However, for the time being, the wild price fluctuations make that untenable.

There is also this thing called Blockchain

Blockchain is the technology behind Bitcoin, and other cryptocurrencies, that people are most excited about.

A blockchain is a public ledger that has all the transactions of anyone using Bitcoin. Each transaction with Bitcoin creates a “block” (verifiable transaction) that is added to the “chain” (ledger) in chronological order.

Each transaction occurs without central bookkeeping and without any intermediary, setting it apart from every other form of currency.

Personal information like a name is never recorded in the blockchain. Instead, everyone receives a digital wallet number and the transactions occur between those numbers only, making it nearly untraceable.

Blockchain is a promising technology. In this McKinsey & Company interview, the interviewee argues that the blockchain has the potential to revolutionize the world economy.

But an investment in Bitcoin is not an investment in blockchain technology.

In truth, I am skeptical that Bitcoin is an investment at all.

It is a speculative bet, not an educated investment

I view it like gambling, and I don’t really gamble. Each year I put $100 into a fantasy football pot and buy some squares during the Super Bowl, but that is the extent of my betting.

Deal me in

The current price volatility of Bitcoin is why I do not view it as an investment now. I am curious about its future and the future of blockchain technology, but do not believe that Bitcoin’s be a key pillar in your investment strategy. 

With all of that said, before rushing off to buy any Bitcoin, please consider your financial position.

Are you scraping by each month and every dollar counts? Stay away.

Are you solidly in the middle class, with a few dollars to spare? Perhaps you spend $100 in a typical weekend grabbing dinner and drinks with friends. Go ahead, spend that $100 this weekend on Bitcoin instead, but understand the risks, and recognize you could lose all of it.

Are you firmly in the upper or very upper class with thousands to spare each month? Do what you want, but not before ensuring you have your retirement plans in check.

A good rule of thumb is to invest no more than 1% of your net worth in Bitcoin or other cryptocurrencies. That is a recommendation I can get on board with.

And please, whatever you do, do not funnel your entire retirement account into Bitcoin or other cryptocurrencies.

That may be an option someday, but that day is not today. That is not a financially sound decision whatsoever, and it isn’t even close.

Don’t be afraid of cryptocurrencies. It is worth your time to understand them. Just don’t bet the farm yet.

What are your thoughts on Bitcoin? Are you in, out, neutral? Share in the comments below!

8 thoughts to “So I Bought Some Bitcoin. Yes, I am Excited. No, I Do Not Think I Will Get Rich.”

  1. We watched the Baking on Bitcoin documentary on Netflix and I don’t see it in our future. However, we have invested in a lithium stock early on that’s about to go on the NYSE. If it rises the way we hope, we hit big. If it tanks, it’s money we’re prepared to lose. It doesn’t make sense but it’s like playing the lottery, which we don’t do.

    1. I’ll have to check that documentary out – haven’t heard of it before now. Good luck with the lithium stock! It may not make sense, but it will be an interesting experience either way.

  2. I own a bit myself, BCT, LTC, ETH but not a ton and I don’t consider it part of my portfolio. That small portion is up a ton from my initial purchase even when you consider today’s massive drop.

    I think crypto has potential but it’s a crap shoot as to which one will be worth much a decade from now(if any that are available today).

    1. Yeah who knows which one will be worth it in the end. Wish I had put a little bit in a while ago like you – but hindsight is 20/20 and literally everyone is saying that same thing haha. Planning on holding my for at least a year.

    1. I’ll have to check that out! But a logarithmic trend doesn’t help a lot of people’s nerves when it drops from $18,000 to $11,000 in a week.. So there is that. Just have to pull the emotion out of it and hold on.

    1. Nice! Wish I had bought back in August haha. I think it is a fun way to allocate a bit of your money if you are able to afford it and are prepared (read: diversified elsewhere) if it tanks. I’m bullish over the long term and plan to keep my $100 invested for at least a year or two (any maybe increase if there is a big dip).

      Thanks for stopping by!

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