Have you or someone you know bought into Bitcoin within the last year?
This might be a really good thing, or a really bad thing, depending on when you bought and sold, Carl Carlson from Carlson Financial explains.
Over the past year or so Bitcoin has skyrocketed increasing from about $800 to $20,000 but so far this year we’ve see a sharp selloff and its value is about 50% off from it’s high in December. There was also a steep decline in many other cryptocurrencies as well.
So what is causing such a rapid loss in value? Carlson said Bitcoin’s run up was largely based on speculation. It appreciated very quickly because there were many people wanting to jump on the cryptocurrency bandwagon, but as soon as there’s a whiff of a downswing, those same people are quick to jump off, leading to massive selloffs.
Bitcoin only has value if the general consensus says it has value so Carlson said he wouldn't recommend buying some now that the bubble has burst.
He said to compare that to a stock you own or if you own a share in a company. A tangible company that you can visit, you see the products they make on the shelves at the store. It’s debatable on whether or not Bitcoin or other cryptocurrencies have value at all, but aside from that they prone to have very rapid, violent fluctuations. If you want to buy cryptocurrencies, consider it your “Vegas money.”
Right some people are going to go out and buy it no matter what, and who knows, it might pay off! Carlson said for those considering Bitcoin, but maybe can’t stomach all the volatility of it to get exposure to cryptocurrencies, without actually holding the currency yourself.
He said there are a couple of new index funds that invest in companies researching and developing the blockchain technology that underlies bitcoin and other popular cryptocurrencies.
There is a huge bitcoin mining boom right now, and by investing in an ETF rather than cryptocurrency, you can be a bit more like a “shovel seller during the gold rush, rather than mining for gold," Carlson said.
So, the takeaway to the average investor interested in cryptocurrency is to not look at it as a get rich quick scheme. If you’re trying to speed up the amount of time it takes to reach a particular goal, know that you might actually be prolonging the time to reach your goal if the investment doesn’t go the way you hope. There’s a high degree of risk involved and the future of cryptocurrency isn’t set in stone, Carlson said.