Assessing Bitcoin’s Value as an Investment

A few years ago, “Bitcoin” sounded like a flash in the pan tech term that wouldn’t have any lasting significance. Billed as a sort of digital alternative to mainstream currency, it was a fairly easy concept to dismiss for those belonging to older generations. That was a few years ago. Now, Bitcoin is actually fairly relevant, much to the surprise of many of us.

The digital currency had a somewhat rocky start to 2017, which might have some proponents getting a bit nervous. However, the price wasn’t volatile in 2016, but rather rose in a fairly lucrative manner. Starting the year valued just over $445, Bitcoin was set at about $968 as of December 31st. These numbers indicate that seniors who like to keep an eye on their own retirement portfolios and take a hands-on approach to investing ought to at least be aware of the circumstances surrounding this bizarre new currency.

So, what exactly is Bitcoin? Defined as a global form of digital currency, it is effectively a source of value that isn’t tied to any one resource (like gold or silver) or central bank. Bitcoins are “mined” online through a complex computing process and then hit the market at whatever value universal demand creates. Bitcoins are traded entirely through digital means, which theoretically makes them easy to trace, store, and use. While still used most easily in peer-to-peer transactions, Bitcoins are being accepted by a growing number of vendors, both in person and online. In other words, if a store will accept it, you can use Bitcoin in place of cash or a credit or debit card.

That said, many people are starting to look at Bitcoin more like a commodity. In fact, the digital currency was officially designated as such by the Commodity Futures Trading Commission. That’s not actually particularly meaningful for you and me, but it speaks to the idea that instead of looking at Bitcoin as an alternative to the dollar, it might be helpful to look at it as an alternative to gold or crude oil. In other words, it’s fair to think of Bitcoin as a stock, and thus as a potential source for investment. And that’s why seniors who take a hands-on approach to retirement fund management might want to give it some consideration.

However, consideration does not necessarily mean it’s a wise investment. It’s just worth paying attention to given that it’s proven to have staying power on the global market. Currently, Bitcoin predictions for 2017 are quite bullish, despite the fact that it seems the digital currency might be due for a slide. It’s been suggested that the price will reach $1000 at some point this year. Some have even gone so far as to make more outlandish projections, such as that Bitcoin’s value could triple! The latter seems extraordinarily unlikely.

If Bitcoin does seem like an appealing point of interest for a retirement fund portfolio, the best course of action, as with any potential investment, is to do your research. It can be a little complicated to grasp the ins and outs of Bitcoin usage, but to look at it as a commodity is far simpler. The digital currency has experienced some fairly dramatic highs and lows over its short history, but now that it’s being used and traded by more people all over the world, its trends may be getting easier to spot.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

3 Comments

  1. Thanks for your perspective on this confusing topic James! The emerging world of crypto-currencies really does make my head spin – but I’m glad there are people smarter than me who can think of these things, as I do appreciate they may be a big driver of innovation in the financial system at large.

    For now, it does kind of seem like a speculative hard commodity. I don’t own any but might pick up one or two in the future just to appease my fear of missing out! šŸ™‚

  2. I thought I was pretty savvy knowing a bit about the huge number of potential investment platforms out there, James, but Bitcoin? Naaaa, I still struggle to understand it as it’s not tied to the value of anything but itself. As far as I can understand, it’s a virtual currency and has no true value does it? And for that reason I’m staying well away from investing in it. Sounds a bit too much like snake-oil to me.

    • While I don’t believe Bitcoin is akin to snake oil, I do believe early users of the currency – and most certainly investors – need to practice due diligence and proceed cautiously when considering it as a medium of exchange or as an investment vehicle. While I opened a Bitcoin account on a trading platform about a year ago, I haven’t taken any action since then to trade. At this point, I’m more interested in Bitcoins as digital currency and what role it might play in digital transactions as I do believe digital currency and exchanges are the future.

      Thanks for taking the time to stop by and share your thoughts, my friend.

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