Take a look at the chart for bitcoin, and then the chart for the typical speculative bubble. Tell me if after seeing these you don’t believe that the bitcoin bubble is in fact a bubble.
First, here’s the chart for bitcoin.
(Source: Bitcoin Charts)
Now look at the chart for a typical speculative bubble.
Source: (Dr. Jean-Paul Rodrigue)
As you can see, the charts are nearly identical. The price of bitcoin is definitely trending downwards. The bitcoin bubble has popped, as all of the enthusiasm and speculation that used to accompany the story has dissipated.
Remember when the story first grabbed the media’s attention? In this case of Bitcoin, most of the smart money had already been made by that point. Of course, it never was smart money, it actually was a lucky gamble.
Arguments for Bitcoin Bubble
Don’t get me wrong, I understand all of the arguments for Bitcoin. I’m in favor of most of them.
For example, many of the governments of the world are printing their currency recklessly. They are each contributing to the devaluation of their own currencies, and each country’s actions reinforces the others. Misery loves company.
But all of this endless printing will come to an end. When this happens, we are sure to see alternative currencies such as gold and silver and possibly crpto-currencies rise.
However, nobody knows which crypto-currency will dominate when this happens. And nobody knows when this will happen. As it stands for now, countries are tolerating the rapid devaluation of the U.S. currency because they are printing money as well. The upcoming increase in energy exports from the U.S. also helps delay this problem.
Bitcoin has been seen as a shelter to the reckless government spending, deficits, and debt. I get that part. But it’s not an investment.
Bitcoin is not an Investment
An investment should always be a source of income.
When you buy a piece of real estate as an investment, you rent out the rooms and collect rent from your clients. You can become very wealthy this way, because you have a steady source of income that you can additionally invest and compound.
Any investment involving paper should give you the same results. When you buy a stock of a company, you put your money at risk for the promise of a share of the profits. We know that as the dividends.
If you put your money at risk without this source of income, you decrease your chances at investing success. Sure, you may find a hot stock like Tesla that quadruples your money over. But what are the chances of that? And do you think you will be successful at finding home runs like that consistently?
Common sense should tell you no. And I’m trying to tell you no.
The only way to build real, sustainable, lasting wealth is through building income streams and compounding them. This was one of the chief lessons from the highly inspirational book Rich Dad, Poor Dad.
That’s why buying into the Bitcoin bubble is not an investment. That’s why even buying gold is not an investment.
Don’t get me wrong, you should have some of your net worth in gold, to guard yourself from inflation. But this should be a small fraction of your total investments, such as 10%.
A cryto-currency like Bitcoin is exactly that, a fake currency. It doesn’t have the track record of gold. It’s not widely accepted like gold.
Bitcoin is only worth something today because people are willing to pay a price for it. But that doesn’t make it a good value. Just ask the Tulip holders how well their bubble currency did for them.
**All Rights Reserved. Investing for Beginners 2013**
**Bitcoin Bubble: One Chart Reveals the Shocking Truth**