If you looked at the attached chart then you already know my biggest regret. It’s not investing in Bitcoin even though I’ve read Fred Wilson about it almost every day for the past four years. It’s been a wild ride where a small bet could have made a fortune. It’s completely out of control. I’ve referred to it a few times as funny money.
My biggest hangup with Bitcoin is that it doesn’t work with the typical investing mindset. I view it as a purely speculative play. There isn’t anything wrong with some speculation in your portfolio. It’s just different. Bitcoin is made up around the idea, or faith, that it has value. Though you can argue that almost any investment is based on the perception of value and not hard assets. Bitcoin is a digital currency. Stocks are a piece of paper. You can’t cash your stocks in for a piece of the business. Certain bonds are tied to hard assets but that doesn’t mean you’ll get all your money back. Futures are a little different, they are tied to assets based on the commodity you’re trading. Most currencies like the US Dollar, Pound, or Yen are tied to the country and the solvency of the country. Most country currencies can be impacted based on the monetary policy of the home country. Bitcoin doesn’t have that similarity to most currencies. That’s why we’ve seen the wild swings. Those swings have been great investment opportunities while it tries to stabilize. We’ll have to wait and see.
What we do know is that Bitcoin hysteria is upon us. Whenever there is a run-up in any asset, I’m always interested to see when people who usually aren’t interested in financial markets begin bringing the topic up during typical conversation. The holiday season is almost upon us. I imagine I’ll be having a number of conversations over this holiday season about Bitcoin, a product most people had no idea existed until a week or two ago.
All of this hysteria feels like the typical top in any financial product where the unskilled investors get into a market only to get knocked out with a big correction. Look out for the Bitcoin articles on the front page of the big newspapers.
In times like these I like to remind myself of the following: investing is usually never this easy.
As Jim Cramer used to always say, “Bulls make money, Bears make money, and Pigs get slaughtered.”