If you’re tempted to buy bitcoin simply because of the recent price surge, keep in mind these investing bubbles that burst — tulip bulbs and Beanie Babies.
Sure, there were winners in the aforementioned investment frenzies? But far more people lost money when they were the last ones holding something nobody wanted to buy.
At the close of markets Wednesday, the price of bitcoin continued its surge, jumping to $12,391.70.
But bitcoin and similar digital currency have taken investors on a wild ride. After soaring, bitcoin dropped quickly by nearly $2,000 at one point yesterday following the crash of a major exchange. By morning it was trading at $11,650.
“The digital coin had peaked well past $19,000 in December 2017, then went into a months-long tumble that bottomed out near $3,400 in January,” reported The Post’s Taylor Telford this week.
Bitcoin is an electronic currency. It’s basically lines of computer code stored on a computer or held by a third party in a virtual wallet. The value of this cryptocurrency and others, such as ethereum and litecoin, have fluctuated dramatically since they were created.
As I’ve written before, no doubt this is breakthrough technology that has the potential to revolutionize the way people transact business online. It could reduce the cost of financial transactions. It could give people living in areas without financial institutions or stable currency a safer way to do business. There’s also a “blockchain” technology behind bitcoin that enthusiasts point to as evidence of its worth.
“Simply put, blockchain is like a ledger book that can be group-edited by people in the cloud,” explained Hayley Tsukayama, who formerly covered consumer technology for The Post. “There’s no central company or government that has to verify a transaction, which means thing can move more quickly. As changes are made, it keeps a public log of what changed, when and how. For that reason, it’s very difficult to fake a change or gain access to the log if you’re not supposed to. The records also aren’t tied to your name, so it makes blockchain another more secure way that people can exchange data.”
Despite efforts to mainstream bitcoin, heed these words of caution from investment experts:
“We view cryptocurrency investing as highly speculative,” said Adam Grealish, director of investing at online financial adviser Betterment. “An investor should be willing to lose 50 percent or more of the value of their investment in cryptocurrency. In the past, we have likened it to angel investing. There is some small chance your investment will pan out and you will have gotten in early on a great opportunity, but there is a real chance that the investment goes to zero.”
The current price surge for bitcoin has many people fearing they will miss out on a big opportunity to make a lot of money. But buying bitcoin is still akin to gambling.
“I perfectly understand why people are drawn to the cryptocurrency but, again, strongly advise that people remember big rewards come with big risks,” said Douglas Boneparth, a certified financial planner based in New York.
And, don’t even think about getting involved in cryptocurrency trading if you aren’t willing to do a lot of homework.
“Those interested in dipping their toes into bitcoin, ethereum or other emerging cryptocurrencies first need to do some due diligence before investing,” said Marguerita Cheng, a certified financial planner based in Gaithersburg, Md. “Cryptocurrency is another asset class. If the average investor is concerned about market volatility and isn’t comfortable, he or she shouldn’t have FOMO (Fear of Missing Out) about cryptocurrency.”
Haven’t heard of bitcoin? Good. Purchasing it should be left to people who have money they can afford to lose — big time.
Color of Money Question of the Week
Have you been tempted to buy bitcoin? Send your comments to firstname.lastname@example.org. Please include your name, city and state. In the subject line put “bitcoin.”
Live Chat Today
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Should you give your kid an allowance?
There’s long been a debate on whether giving children an allowance helps them become better money managers.
Last week I asked: What do you wish your parents had taught you about money?
Lauren Strinden, investor education coordinator for the North Dakota Securities Department wrote, “I wish my parents had told me about the daily Express Train to ‘millionaireville’ and that the sooner I got aboard the better because the fare gets rapidly more expensive with every day I delay and that someday I would sorely regret not taking advantage of time and the amazing wonder of compound interest.”
“My mom was a spendthrift and blew every penny she got before she had it,” wrote frequent commenter Lorna Gilkey from Alexandria, Va. “My daddy was a saver who rarely spent anything, saved everything, and fully tithed at church plus extra. Being raised by my dad helped me be a better person all around. He gave me $7 per week allowance (80s) and that had to cover my lunch, any treats and church [offering] on Sunday. On the occasions when I lived with mom, I got exorbitant allowances ($20 per week, plus extra $50 once a month) with no guidance. So, I wish both parents had taught me BALANCE when it comes to finances: to tithe, save for emergencies and retirement, be vigilant about paying bills on time and to have occasional treats as well. Being extreme on either end is unhealthy and I wish I’d been taught that early and not had to wait until I was in my 40s before learning these valuable lessons, which I now share with my sons.”
Jonathan Lusk of Potomac, Md., wrote, “I wish my dad would’ve been willing to teach me about investing. When younger in my 20s, I would ask for his input and he would find a way to not answer. We got the same from my father-in-law after my wife and I got married. We learned by reading and doing, mostly through a bull market that helped a lot.”
“It would of help me earlier in life knowing how much stocks do better than money sitting in the bank or how much fee's lower your rate of return over time,” wrote Drex from Nashville
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