When we talk about Bitcoin, I cannot help but note a pronounced generation gap. My parents would likely say, “What is it and why would we ever give up currency and banks for something that can’t be seen or measured objectively?” Or, perhaps, “What is Bitcoin?” My children might someday ask me, “Dad, what was Bitcoin like when you were little?” This divide exists in the face of any real creative disruption. It falls to those of us in the middle to answer the more pressing question of whether or not Bitcoin represents a smart investment opportunity. Last year, we saw the price of a single Bitcoin rocket from under $1,000 to a high of over $19,000. Fortunes were made, some were heralded as geniuses, and – for a moment – we stood on the precipice of a tidal shift. Armed with today’s knowledge, it is easy to wish we jumped in before Bitcoin surged. We cannot subject ourselves to this kind of daydreaming because it does not solve the problem of what to do with Bitcoin today. The only real way to answer this question is to focus on your own risk tolerance.
Nobody has a crystal ball when it comes to investments – at least nobody from whom you should be taking financial advice. When I consider Bitcoin, I think about it in terms that address my risk posture today. Bitcoin was a first mover and, as such, was able to make big gains in unexplored territory. The landscape has since changed. Between Ethereum, Ripple, Litecoin, and the scads of other cryptocurrency offerings, there is now significant competition. It would be a mistake to fall into the Blackberry mindset of thinking nobody else will pull ahead. As the industry as a whole develops, we need to stay aware of all the fish in the pond.
Headlines and hype have a tendency to blind us to the possibility of a better option. To garner the greatest customer base, a cryptocurrency will need investment, market study, and superior execution. Is Bitcoin going to win this race? At this moment, I am not certain that it will. I would not count it out, but this uncertainty spells more risk than I am willing to bear. Do not let my actions deter you from making an investment, though. Your portfolio might be very well suited for such a move. I am reminded of Warren Buffet’s very sage investment advice formed long before we ever knew about the internet or dreamed of cryptocurrency:
“Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management and limited exposure to hard times. … Buy into a company because you want to own it, not because you want the stock to go up. … People have been successful investors because they’ve stuck with successful companies. Sooner or later the market mirrors the business.” (From a Forbes interview dated 1 November 1974.)
Creative disruptions and bubbles are often wild rides. If you see someone striking gold, it is hard to not want to pack up the chuck wagon and head West. I quiet these knee-jerk reactions by thinking about greater minds who flailed in such environments. Isaac Newton, who lost a fortune in the South Sea Bubble, summed up his financial missteps by saying, “I can calculate the motion of heavenly bodies but not the madness of people.”
I wonder if my children will want to know about Bitcoin, if these cryptocurrencies are indeed here to stay. For the time being, I am willing to miss out on a few Bitcoins if it affords me peace of mind.
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