Is Bitcoin a good buy or a bubble?

Note: This column originally appeared on El Paso Inc. on January, 2018, shortly after Bitcoin traded at its (so far) historic highs above $19,000. While the rage has subdued, Bitcoin is still a topic of conversation in certain groups. 

Note 2: Yes, I know that there are no "Bitcoin coins". Photo by Andre Francois on Unsplash.

All right, back to the column.

Bitcoin is all the rage.

Once an obscure topic limited to technophiles, now almost every media outlet talks about the cryptocurrency. They talk about how high it went in a day or how much it lost in value in a few minutes. They talk about the latest Bitcoin billionaire.

With all of the noise, you may be wondering if it’s time to buy into cryptocurrencies – if they’re a legitimate investment or if they’re a house of cards that is ready to fall any minute now.

The most popular cryptocurrencies are Bitcoin, Ripple, Ethereum and bitcoin cash. There are more than 1,300 at the time of this writing. They sound like an investment, except there’s nothing backing them up. With standard currencies, you have the full faith of the government that issues them. When investing in real estate, you have the property. In stocks, you own a piece of each company you buy, and with it, you own the company’s future. Same with most other investments; they have intrinsic value.

Cryptocurrencies lack that. At their most basic, they’re simply the result of complicated mathematical calculations policed by a global computer network, a process called “mining.” These “numbers” have risen in value as interest in buying them has grown – simple supply and demand.

Cryptocurrencies are relatively easy to buy but hard to sell. Even with the most reputable exchanges, it can take you several days to get your money. And, of course, they will happily take their cut when you either buy or sell. The house never loses.

So should you buy? If you have a few hundred dollars that you don’t care about losing, sure, go ahead. It may be an interesting experiment. It will be very volatile, going up and down. It may be exciting but so is going to a casino.

Is Bitcoin a bubble? To me, it looks and acts like one. When will it pop? Maybe tomorrow. Maybe in a few years. In the last few weeks alone, for example, it’s decreased in value almost 25 percent. Will this downward trend continue? Is it a trend? I, seriously, have no idea. Neither does almost anybody else. Why almost? Because roughly 1,000 people own about 40 percent of it. Maybe they know when it’ll pop, but I’m sure they won’t tell anyone.

If you have an investment portfolio that you’re relying on for your retirement or any other goal, I would suggest that you make sure that it’s properly designed with your needs and values in mind. Remember, your financial confidence is more important than whatever happens with Bitcoin or any other shiny investment.