A friend asked for advice on investing in Bitcoin, and I'm posting the response in the hopes that it'll help someone else.
Note: I am NOT an expert. At all. And I own cryptocurrencies so have a vested interest.
I have three perspectives:
- Cryptocurrency will either become a giant thing or it won't. If it does, it'll go up a LOT. Over the long term, the bet is that your money will either go to zero or multiply by hundreds or thousands.
The underlying technology is exciting, and I believe it'll be highly useful for some applications. Possibly for a huge proportion of global commerce. Hard to say yet.
SO: Get in the game at least a little bit and invest an amount that you are willing to lose, but would be very happy if it went up by 10-100x. Diversify your investment — it's not clear whether Bitcoin is the one. As Ka-Ping points out, buy crypto and HOLD it, even if it goes down. Just stay on the train.
- Bitcoin, and many of the other coins, are quite likely overvalued right now. 1000 people own 40% of bitcoin and can easily manipulate the price by trading with each other. There's no way of knowing what level of support it has outside of these trades. Some speculate that they'll drive the price up, maybe to 60k or higher, and then drive it down to profit. Google "pump and dump." You're at the mercy of bigger forces, so it's hard to know what the real value is.
SO: Keep crypto alongside a conservative investment strategy. And even if this is all true, it's still good to put some money in because of (1). If cryptocurrency becomes a giant thing then it's worth more than it is right now. So get on the train. And definitely save some money for an eventual crypto crash / correction.
- There are lots of new coins and ICOs, and some of them will end up becoming huge or grow a lot in the beginning. Lots of inefficiency. So there's lots of opportunity to make short-term gains.
Short-term trading (risky!) or joining a fund is another option.
OVERALL ADVICE: Get on the train. Remain highly skeptical. Don't assume that past performance is any indicator of future or that an asset going up means anyone was right about anything.
(And remember: YOU are not an expert on something just because you made money on it!)
EDITS: Including some great comments here:
- Use your money to help the world. Austin recommends some great places to put it.
- Christopher points out that Bitcoin is a hedge against the USD crashing, which I definitely agree with and is a reason I'm in it.
- Peter reminds us that bitcoin is currently devastating to the environment. I am not positive but believe this is largely because of the work involved in mining. There is talk of switching to a proof of stake system which would make a huge difference in the environmental impact, and other coins (MobileCoin, for example) will be much better.
EDIT 2: A reality that I don't love: a lot of the strongest use cases for bitcoin are as a store of value for war, laundering, murder, tax evasion, theft, and international gang infrastructure.