Several months ago, in late 2017, some people I knew started talking about huge returns they were seeing from their bitcoin investments.
I heard stories of people doubling their money in only 1 month. After doing some research, I realized there was a full blown bitcoin mania going on. But, why the sudden meteoric rise in bitcoin price? What drives their popularity?
The main factors that seem to make bitcoin so popular are:
- Blockchain Technology
- Distrust In The Current Financial System
- Potential For Very High Return On Investment
Though bitcoin has plenty of skeptics, bitcoin proponents like to say “Blockchain technology isn’t going away.” That may be true, but it certainly doesn’t mean that bitcoin will always rise in value.
It’s kind of like recommending that you buy stock in “XYZ Corp.” because the stock market isn’t going away.
Cutting Out The Middle Men
Blockchain technology allows bitcoin transactions from one anonymous party to another. No prying eyes of the government and no banking fees are another benefit to using bitcoin. It is one of the few, true free markets left in the world.
How long will it remain unregulated? It’s hard to say. I can’t imagine that most governments (Especially The United States) would allow people to send unlimited funds between anonymous sources.
Bitcoin Is Going To $1,000,000?
I have actually heard people say this! What is that projection based on? Pure speculation and wishful thinking as far as I can tell. Demand would have outpace supply by a huge margin to drive bitcoin anywhere near $1 million per coin. It doesn’t seem very likely to me.
Is Bitcoin A Scam?
No, bitcoin is real (imaginary) money. In other words, you don’t invest in a physical coin. Your investment is recorded in an online ledger managed by the blockchain. The value of these imaginary coins rises and falls according to the market fundamentals of supply and demand. The blockchain is considered by many to be hack-proof so your investment is as safe as any other.
ATM’s For Bitcoin
There are several companies now manufacturing and placing ATM machines that also you allow you to do bitcoin transactions and even buy or sell bitcoin. The video below demonstrates how to use one of these machines.
Futures exchanges have even decided to get into the bitcoin game. Due to the volatility of bitcoin, margins and maintenance are higher than physical commodities with more stable prices.
Is Bitcoin A Pyramid Or Ponzi Scheme?
Any time something new comes along where people make big financial returns in a short amount of time, some people are quick to assume it’s a Ponzi scheme and label it as such. I often find that there is a lot of confusion surrounding Ponzi schemes and what they actually are.
Ponzi schemes are developed by companies or charismatic individuals who build a financial pyramid from the top down. Their investors don’t know they are investing in a pyramid scheme. They invest because they are promised a higher rate of return on investment than they could ever hope to achieve on their own.
When investors see these high rates of return, they are often eager to reinvest and tell others who are also eager to invest. Word of mouth is the most powerful tool for the Ponzi scheme artist. The reason for this is simple.
There are no underlying assets. Old investors are paid off with the influx of new money. As long as there is more new money flowing in than there is flowing out, the scheme keeps running along.
While it is likely that there people out there running bitcoin based Ponzi schemes, it is the actions of these individuals and not bitcoins themselves that are the schemes.
Is Bitcoin A Good Investment?
Some people will claim that bitcoin is a good investment because there will never be more 21 million bitcoins mined. I can understand the logic behind the scarcity angle, but just because something is scarce, doesn’t necessarily mean it’s valuable. Bitcoin doesn’t offer an extraordinary service and if people lose interest, it could easily fall to almost zero.
Unlike other collectible coins, bitcoin has no intrinsic value. It’s a currency without a country or government to back it up. It’s value is nothing more than what people are willing to pay for it. The “Greater Fool Theory“.
Nobody really wants to own bitcoin. People buy it for 1 reason, To sell it at a higher price to another speculator. I know people who are (or at least were) making good money trading bitcoin. You know, repeating the “buy low, sell high” cycle.
The people who seem to be making the most money are traders and people who sell bitcoin trading courses. A friend of mine does very well trading cryptocurrencies, but he can sit in front of his computer all day and watch the price fluctuations. If you don’t have the luxury of having a lot free time on your hands, trading can be risky.
If you want to learn more about trading cryptocurrencies, there are several reasonably priced courses available through Udemy.
Is Investing In Bitcoin Risky?
The bitcoin market is extremely volatile, it has no underlying assets and is fueled mostly by greed and fear (fear of missing out). It is not uncommon for bitcoin to lose as much as 30% of it’s value in a day or 2. These kinds of price drops can cause panic selling which means you may have a hard time even selling until it reaches a new bottom.
Bitcoin has also faced new challenges in recent months. Since governments can’t control bitcoin, many of them see it as a threat to their own banking system. And you know how governments are when it comes to their banking systems. Some countries have even made them outright illegal.
Even the countries that haven’t banned them don’t recognize bitcoin as legal tender but, they still expect you to pay taxes on any profits you earn (Surprise, surprise).
Some credit card companies have stopped allowing people to buy bitcoin with their cards. Banks understand that is isn’t wise to lend money for risky investments. If your investment suddenly drops significantly in value, not only are you paying interest on your investment, but now you are paying interest on your loses!
Don’t invest what you can’t afford to lose would probably be my advise. It’s easy to get sucked in by the stories of people becoming overnight millionaires. The problem is, by the time you hear (or read) these stories, it’s too late. If you had invested $100 when the price was only $.05 per coin, you’d be a multi millionaire now. But, there is no way for bitcoin to increase that much in value from current prices.