Should You Start Investing in Bitcoin?
Mark Nestmann writing on bitcoin…
In 2009, Kristoffer Koch bought 5,000 bitcoins. It cost him $26.60, and he forgot about them not long after.
Four years later, he was a millionaire.
Koch discovered the fledgling digital currency while researching his thesis on encryption and decided to make a small investment. At the time, one bitcoin cost less than a penny.
In 2013, he saw the flurry of media attention surrounding the rise of the digital currency. He decided to hunt down his old password and log into his “wallet.”
He discovered that each bitcoin was now worth more than $200. The total worth of his 5,000 bitcoins was $890,000.
Koch cashed in 20% of his bitcoin wallet to buy himself a house in Norway.
The rest of his stash continued to grow, with bitcoins hitting a high of $1,242 each before the year was out.
But will it ever be as safe as traditional havens like gold?
It’s hard to compare the value of the world’s classic store of value – gold – with a digital currency that has no tangible form. But on March 2, 2017, a watershed moment occurred. For the first time ever, one unit of bitcoin exceeded the value of an ounce of gold.
Bitcoin closed the day at $1,268. By comparison, gold ended trading at $1,233 per ounce.
Bitcoin’s attraction is obvious. In an era where governments are imposing negative interest rates and other measures of “financial repression” against savers, Bitcoin offers a store of value that governments have no means to manipulate. What’s more, since bitcoin transactions occur “peer-to-peer” rather than through a financial institution, governments have no convenient way to monitor those transactions. Governments also don’t have the power to confiscate bitcoins as they can bank or securities deposits.
Should you invest in bitcoin?
It’s certainly not a risk-free proposition. Bitcoin’s value rose from zero to peak at nearly $1,000 per unit at the end of 2013. Then, it lost more than 75% of its value over the next year. Although the price remains volatile, it has since fully recovered. Each bitcoin is worth more than $2,000.
Bitcoin is worth considering if you’re tired of savings accounts that generate close to zero interest rates, or even negative rates in some cases. As always, when purchasing an asset with volatile values, the safest strategy is to “dollar-cost average” your purchases. Buy a little bitcoin every week or every month. That way, you’ll automatically buy more when prices are low and less when prices are high.
The age of digital currencies has arrived. And while I’m not sure that bitcoin will be the “gold standard” for digital currencies forever, it’s a great way to get started with them.
Editor’s note: Mark Nestmann is an expert in wealth protection at Nestmann.com.
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