Bitcoin as an investment?

I can’t understand how it appreciates in value?? What is it based on?? I know several people who are claiming impressive earnings after selling off portions. I am so tempted but can’t help but feel I waited too long.

There is value in the blockchain technology. Bank of America is trying to corner the market in blockchain patents. Perhaps taking a stake in BOA is a safer option.

The same way that gold and beanie babies do. The supply is limited (either absolutely or artificially) and lots of people decided that they need to have it (and that they will be able to resell it in the future to someone else.)

An ideal investment behaves in certain way in correlation to other things going on in the economy. Some things do well when the economy is good, some are better choices when the economy is going down. You just have to assume that things are going to go a certain way for a while and make suitable choices. No one can predict with significant accuracy how things are going to turn out, but you can hope.

Some “investments” don’t work this way.

Gold, for example, doesn’t tie well into the economy. Many of its shifts don’t correlate with other market factors. But there is at least a bit of a connection. Investing in gold is mostly just gambling.

Bitcoin seems to be worse than gold in terms of gambling, but, like gold, bitcoins have an actual use. Some people actually use them to make purchases. It appears that some of the rise in value in Bitcoin is due to these people needing them to make their transactions. So if this use increaes, the value of bitcoins may increase so it could behave more like an investment.

But note that a lot of these users of bitcoins are involved in darknet activities which might be disruptible by governments trying to shut them down. E.g., there was a recent massive DDoS attack on the major darknet drug markets recently. So hoping that this will grow might not be smart.

Also, the use of bitcoins is quite small compared to just storing them for later gain. (Gold also has this situation.) This creates wild swings due to market limitation effects. It doesn’t take much change in demand to make a big change in price.

And if you’re thinking about investing in X because it’s gone up a lot lately, you’re too late to the rodeo in most cases.

Not an investment; a good way to make or lose a lot of money. That’s gambling in my world.

I don’t follow cryptocurrencies very closely but I was involved with them for a while and here’s my perspective.

Cryptos have no viable use case. The only possible exception to this is for cross-border payments since you can transfer money with only nominal fees. But practically speaking that’s not really an option in most cases since the recipient still needs to be able to convert to local currency and one’s options for doing that are severely limited.

Currently such currencies I believe are being used mainly for illegal and quasi-legal activities. For example in China where there are stringent capital controls, if you want to get money out of the country, your only options for moving significant sums is to attempt to evade those controls. Cryptos provide a method for doing that but can also be subjected to government regulation.

I think the dramatic increase in price of btc and other cryptos is due to the fact that the float in these currencies is very limited. While there may be x units that are technically in circulation the amount available for transactions at any given moment is an extremely tiny portion of the total. And as the price increases, fewer people are willing to sell which further limits availability. So you have a situation with increasing demand and decreasing supply.

Ultimately there are any number of potential shocks which will disrupt the market as it exists today. Closing down any of the underground and black markets that make use of cryptocurrencies will decrease the demand, at least temporarily. Government regulation of how these currencies can be traded will also decrease demand.

At present, most governments tolerate the trade in cryptocurrencies because they don’t see them as a threat to their local currencies. If at some point that changes, they could be regulated out of existence literally overnight.

Sellers profit, the buyers almost never.
Tulips were brought up; the buyer got wiped out when the market busted.
Gold - Spain brought tons of it back from the new world. It crashed the Spanish economy. gold actually has few uses beyond electronics. The rest is ornamental. The mining equipment makers and ship builders did well.

Look at the gold rushes - California, Klondike, Yukon. The only folks making permanent money were the ones selling mining supplies, food, transportation, the get-rich-quick idea.

Dot.com crash - sellers or company originators did well; buyers were hosed.

Housing crash - sellers of homes, derivatives, bundles of crap mortgages, re-insurance did well. Buyers were crushed.

Bitcoin - I’ve done well with one stock, Nvidia. The produce (sell) the chips that are in high demand for this “mining” of bitcoins. They are a seller.

Some Bitcoin exchanges have failed/disappeared/crashed. Where did the bitcoins go that they were holding for others?

Invest in an activity that exists primarily to provide cover for criminal enterprises (blackmail/drugs/arms)? Be my guest.

Over the past 3 or 4 years, whenever I hear someone talking about getting into bitcoin, my first thought is “you’re too late!” And maybe 2 years ago it looked like it was going to peter out. But now it’s skyrocketing. Personally, I’m going to continue to avoid it because I’m fairly risk averse.

My problem with “investing” in bitcoin is that there is no underlying value. Its value is entirely based on a market for it that is completely unpredictable. There is no way to assess the risk. If you want bitcoins because you want to use them to buy stuff, that could make sense. But as an investment it makes less sense than investing in the Yuan.

Supply and demand, like every other commodity. Bitcoins are “mined” by server farms that do arithmetic to create bitcoins (I don’t know how this works computationally, but it requires a lot of computing power. You are basically minting bitcoins from electricity.) If more people want bitcoins that what are available though production, value goes up.

The problem is that the demand can disappear in an instant, because there’s very little use for bitcoin. It’s not like wheat futures (many people eat bread, and will continue to do so) or Apple stock (many people buy and use iPhones and iTunes, and will continue to do so). The main practical use for bitcoin is to hide criminal transactions. The price is being driven up not by demand by criminals, but by speculators. If something causes enough speculators to want to get their cash out, the price will very quickly drop to that supported by the demand of criminals.

That’s mental accounting steering you down the wrong path.

If you had $17k in cash and no Bitcoin, would you buy Bitcoin with it right now? If not, you should sell and be in the “have cash” state.

It doesn’t matter how much you bought it for. Taking out the original amount invested won’t make the other $13k less real if it goes to zero. It will still be $13k at risk, not $0. Losing money “on paper” is losing real money. Our monkey brains just aren’t good at thinking about it properly.

I will second that. It’s real money, and if you lose it, it’s a real loss. I had this discussion with BakingWithElectricity over stock we held in her company after she exercised options. I asked if we had that amount of money to invest, would we buy her company’s stock? The answer was obviously no but she wouldn’t let it go. The stock dropped like a rock after the housing bubble and we lost real money that we would still have if we had sold it.

Oh, I definitely wouldn’t buy it now with $17k in cash. The price is near historic highs, and BTC isn’t real. On that point, I try not to have $17k in cash (barring emergency funds), either, as fiat currency is just imagination, too, and only has value for the same reasons BTC has “value”: we all kind of simply agree that it does.

Hyper-inflation can wipe out any perceived value of cash, whereas a widely-diversified portfolio can lose a lot of value in a crisis, but at least you own a real piece of something. If $100 cash can only buy a load of bread, then my 0.01% stake in a bakery is still worth that 0.01% stake in the bakery.

Then you should sell your Bitcoin and buy whatever you would buy if someone handed you a check for $17k (investment, debt paydown, new car).

Also a good place to hide money as there is no mechanism to levy a bitcoin wallet.

Its also not just speculators, the bitcoin mining algorithm gets harder over time. thus new bitcoins are harder to make.

A side question on this topic, it is possible for a bitcoin to be lost/non-recoverable?

There are absolutely no fundamentals to help you value a crypto-coin investment, and it’s hard to see what social or political forces could suddenly change the value.

Really there are 2 ways go go… either you stare at the price fluctuations until you think you see a pattern, and bet on that, or you invest small amounts in a few currencies hoping one of them will take off. I’m doing the latter. I’m OK if it tanks, but I would be incredibly OK if it takes off.

I guess I’m finally into adulthood, because there’s nothing I really want that I don’t have; the only debt is my house; and I already drive a new car. I have other money set aside in case I want something. Having grown up trailer trash, this is a very comfortable realization.

I guess what I really want is to see what happens to my BTC.

Yes. If you lose the private key for an account, then the bitcoin in that account is stranded forever.

Also it can be stolen if someone else manages to get the private key. Which makes it lost/unrecoverable to you at least.

Any investment is a risk, but bitcoins are the best choice that can be. Because this crypto currency is rapidly growing. By the way, bitcoin recently broke a new record. But you need to constantly monitor the latest news (for example https://bitcoinbestbuy.com/). You can also try earning on bitcoin. Many people earn this way now

One of the mistakes that people make in investing is assuming that a growth trend will continue forever. This helped spur the real estate bubble that crashed in 2008, bringing the rest of the economy down with it. A lot of people at the time believed that the upward spiral of prices would continue forever (or, at least, for a long time), which made them think it was safe to be highly leveraged. After all, if that house you bought keeps going up in price fast enough, you don’t have to worry about keeping up with that variable-rate mortgage once the payments get too big—you can just sell the house at a huge profit, pay off the loan early, and have money left over to buy a new house so you can do the whole thing over again. Or you can take out loans against your house to use as income, again with the idea that you’ll be safe as long as the house appreciates fast enough.

All of this is possible with any investment, including bitcoin. The price of bitcoin has been going up rapidly for a while, but that doesn’t mean this will continue. If the value of bitcoin drops significantly, those people who have invested heavily in it will lose a lot of money. Any of these people who are highly leveraged will be really screwed. And I think this is a likely scenario. I believe there’s a speculative bubble in bitcoin, and bubbles always burst.