Bitcoin: Is the party over?

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As an investment, Bitcoin has so far been unable to win me over. When I look at a stock I try to find value, or at least my interpretation of value. I am still relatively new to investing but I feel comfortable looking through a company’s financial statement to assess financial health. With Bitcoin I cannot do this. Therein lies the first issue.

Secondly, at this early stage it’s impossible to tell exactly how blockchain technology will settle into the world and which cryptocurrencies will go the distance. At the moment cryptocurrencies are springing up everywhere but surely only a few will survive. Just because Bitcoin, Ethereum, Ripple etc. are the biggest at the moment, it doesn’t mean they will all survive.

The drop

Since Bitcoin peaked in mid-December at almost $19,000 a coin the price has fallen more than 50%. Is this just a blip or is the buying frenzy over? When the price was rising week after week everyone wanted to get in on the action but how many people are as keen when they have seen a 50% drop? As Bitcoin has no earnings and does not pay a dividend, what other reason do you have to buy other than to see the price increase? If you bought at the December highs you would now have to see an increase of more than 100% just to break even!

The dilemma

For those who bought high and have since seen Bitcoin’s price drop, what is the next move? Do they hold and hope the price starts to climb again? Do they sell and cut their losses? When the share price of a company drops significantly you can reassess the situation and see how it will affect the earnings. With Bitcoin there is no such luxury. Until we know the long term role of Bitcoin and cryptocurrency in general, any investment is pure speculation.

The damage

On Instagram I see an incredible number of accounts dedicated to helping people “make money” from Bitcoin and other crypto’s. As a platform used mainly by the younger generation, it worries me just how many young people with little or no investing experience will be risking money in the the hope of getting rich quick. For many, I see a very unhappy ending. The saying goes that if it was that easy, everyone would be doing it. Well everyone is doing it….so what now?

Let’s say you are sat in a room full of people and everyone is seated. You want to get a better view (don’t ask me what you are there to see, use your imagination!) so you decide to stand. A few other people scattered around decide to do the same and for a short while the small number of people standing have a great view. The problem is that everyone left seated realises you have a great view so they too decide to stand. Before long the whole room is standing and now you all have just as good (or bad) a view as when you were seated. The game is up.

Summary

Time will tell what the future holds for Bitcoin and the other cryptocurrencies. Whilst I believe there is a future for blockchain, I currently have no interest in betting on it. For those with little or no investing experience, I would urge you to avoid it too. If you are determined to get in on the action then I would recommend you read the recent article I wrote on diversification.


If you liked this post, why not find out my thoughts on the future of cryptocurrency

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