Should you invest in bitcoin? The question continues to loom large in early 2018 — but it by no means has a clear answer, as its value continues to fluctuate. Here are three reasons why it could still pay off to invest in bitcoin in 2018, and three reasons why it may be a poor choice..
Last summer, after a four-fold in value, I wrote a similar piece about reasons to invest not to invest in bitcoin. At the time, bitcoin was trading for around $5,000. That figure today is $8,200 (Feb. 6). If you had invested in bitcoin six months ago, it would've paid off. On the other hand, just a few weeks ago bitcoin's value peaked at approximately $19,000. Its recession to the current level means that many recent investors have lost money.
The bottom line: Bitcoin investing remains risky business. If you're considering investing – or if you have already invested and are deciding whether to keep your money in Bitcoin – you should think through the following points.
Reasons to Invest in Bitcoin Now:
- Its price is still climbing overall. Despite declines in late December 2017, bitcoin's overall trend is still very positive. That has been the case since bitcoin's inception, notwithstanding a few crashes from which the cryptocurrency recovered sooner or later. There is no reason in particular to think that bitcoin's years-long upward trend will end now.
- Previous predictions of bitcoin's impending doom have all been wrong. For years, lots of folks have been predicting that the bitcoin bubble was on the brink of bursting. So far, they have all been wrong, at least in the long term. (In the short term, Bitcoin has gone through a few significant bust-and-boom cycles.) Again, there is no reason in particular to think that the bitcoin gloom-and-doomers of the present are going to turn out to be right.
- Bitcoin is being used for real-world purchases. Bitcoin's ability to retain value in the long run depends on its being adopted by the public at large. That has not yet happened, but adoption is slowly increasing. The first major bitcoin real-estate deal in the United States was recently announced, for example.
Reasons to Avoid Bitcoin at All Costs:
- Bitcoin's value still is driven mostly by speculation. Despite some examples of real-world use of bitcoin, the majority of its value derives from investor speculation. People want it because they think it will be in widespread use in the real world in the future, not because of what it is being used for today. This makes bitcoin equivalent to a startup that has a brilliant idea and a working prototype, but has not yet put its product into large-scale use. Whether bitcoin can successfully be implemented on a large scale (and handle the security, scalability and other challenges that will inevitably arise if millions of people use it every day) remains to be seen.
- Other cryptocurrencies are appreciating faster. If you want to get spectacular returns on your investment, bitcoin is probably not going to deliver. Its value might continue to increase, but it almost certainly won't be at the exponential levels of the past. If you want to turn a $1,000 investment into $100,000, bitcoin isn't your answer, unless you invested years ago. Other cryptocurrencies, however, might still see rapid rises in value. Ether appreciated about 10,000 percent in 2017, for example, despite making many fewer headlines than bitcoin. Of course, those other cryptocurrencies are even more speculative and volatile than bitcoin.
- It's hard to sell bitcoin quickly. One factor that makes bitcoin a risky investment is that it's hard to sell it off quickly in the event that the price crashes. Many people don't realize this; they assume that, as a digital currency, bitcoin can be bought and sold instantaneously. That is true if you're trading it for other cryptocurrency. It's not usually the case if you want to trade bitcoin for dollars. Bitcoin exchanges like Coinbase have been known to crash during times of peak demand — and it's a safe bet that a sudden decline in bitcoin's value would trigger the type of demand that would render exchanges unusable, leaving many investors unable to withdraw their bitcoin before it loses all of its value.