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If you believe what you read in some of the mainstream financial media, investing in Bitcoin is a terrible idea that guarantees you will lose most or all of your money.
Instead of offering true insights on the pros and cons of Bitcoin investing, far too many financial columnists continue to recycle inaccurate myths that paint the digital currency as an extraordinarily dangerous investment.
Please.
I've been researching and writing about Bitcoin for six years. Early on (in 2011), I even mined Bitcoin on my home computer. I know from personal experience that these articles are off base.
In fact, the Bitcoin price is likely to rise by a factor of more than 10 over the next few years. One Bitcoin price prediction from Wedbush Securities projects the price of Bitcoin at $17,473 by 2025.
And over the years, I've become acquainted with an assortment of influential members of the cryptocurrency community. I communicate regularly with such folks as Vinny Lingham, founder of Gyft and a Bitcoin Foundation board member, and Spencer Bogart, the managing director and head of research at Blockchain Capital.
The opinions of these knowledgeable Bitcoin insiders often contradict what's being said in the mainstream media. And these insiders are usually proven right.
The problem is that the average investor is far more likely to run across an article in Money or The Hill than the opinions of those who understand Bitcoin best.
Don't get me wrong. I'm sure most of those who write for the mainstream media are well-meaning. But it's obvious they don't quite grasp the revolutionary nature of Bitcoin and why it's such a game-changing development.
I'll give you an example...
Investing in Bitcoin Isn't Like Investing in Anything Else
Take a recent Kiplinger article, "Should I Be Tempted to Invest in Bitcoin?" The author, Taylor Schulte, is the founder and CEO of Define Financial, a San Diego-based financial planning firm.
Schulte argues against investing in Bitcoin for two reasons.
First, he claims that like other commodities, Bitcoin is an investment that produces no return. This much is true, but Schulte goes awry when he says Bitcoin's future gains will depend largely on inflation, like other commodities.
Related: How to Buy Bitcoins - Your Guide to Digital Profits
Then he switches gears and says that because Bitcoin is a currency, it can't increase in value as a result of inflation - "because that's exactly what inflation is - a decrease in the value of currency."
My head is spinning. What Schulte and others like him don't get is that Bitcoin can't be evaluated properly as either a commodity or a currency. It functions as both.
That, and its fully digital nature, makes Bitcoin a completely new animal in the world of finance. It's an odd-shaped peg that doesn't fit into any existing holes.
This kind of thinking is responsible for many of the myths about investing in Bitcoin that have sprung up over the past four years. In other cases, criticisms directed against Bitcoin apply to many, if not all, other types of investments.
Now, investing in Bitcoin isn't necessarily for everyone. But investors deserve better than these misguided arguments...
6 Stubborn Myths About Investing in Bitcoin
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
Another well informed article david.
I have a question, what are your thoughts regarding the,rising tensions between Segwit and BU? There is increasing chatter about a hard fork,could this cause a huge crash in the value of bitcoin?
Jeff,
Thanks for reading Money Morning (and the kind words.) The division over SegWit and BU is a serious issue. I'd prefer that a consensus be reached to solve the block size problem, but I don't see either camp giving any ground. A hard fork would cause a big drop in the Bitcoin price. How much is hard to say, but a 50% drop wouldn't surprise me.
If it happens, the aftermath will be what counts. Assuming both blockchains continue, a "winner" will emerge, much like we saw with Ethereum. The "winner" version of Bitcoin will then draw in more and more miners and users, while the "loser" version will exist mainly to serve its hard-core fan base. The price of both versions will eventually recover.
This isn't an ideal outcome, but I believe Bitcoin must be able to cope with much higher transaction volumes to continue growing and thriving. This problem needs to be solved somehow. I suspect some sort of sidechain technology ultimately will be the answer (possibly Lightning or something like it).
-Dave Zeiler, Associate Editor, Money Morning
thanks dave,
Very nice review. Would you please comment on the failure of the SEC to approve the Winkelvoss twins Bitcoin ETF and the two remaining Bitcoin ETF applications in at the SEC?
Thank you. DL
Hi Debbie,
Thanks for reading Money Morning. I'm 99.9% sure that neither of the other two Bitcoin ETFs will get approved.
Here's why. The SEC's main objection to the Winklevoss ETF was that much of the global Bitcoin market is unregulated, particularly Bitcoin exchanges overseas. The SEC also wants to see "surveillance-sharing agreements" between the BATS exchange where the Winklevoss ETF planned to trade and other markets. As the SEC points out, such agreements aren't possible at this stage. The Bitcoin market simply isn't structured for it (yet).
The applications of other two Bitcoin ETFs suffer from this same fatal flaw. So for the immediate future, there will be no Bitcoin ETF.
At the same time, the SEC did not close the door permanently. In the decision the SEC said that should regulated Bitcoin markets of significant size develop, the agency would be willing to reconsider approving a Bitcoin ETF. There almost certainly will be a BItcoin ETF at some point, but we're looking at years, not months.
Hope this helps,
Dave Zeiler, Associate Editor, Money Morning
Hello Dave,
The article about Bitcoin was great and very simplified where a person like me who is new to the investment world could also understand. Will you also throw some light on other cryptocurrency ETH ( Ethereum), which also in recent times have shown the uprising. Is it a next big thing after Bitcoin or it's a competitor of Bitcoin. What I have read and understood about each of them is that ,each has its own use. So I would like to know about investing in ETH.
Thank You
Hello Dhruv,
Thanks for reading Money Morning. I have written several articles on Ethereum. Here's one I did last year that explains how Ethereum works and how it differs from Bitcoin. I did another article last week explaining why the price has spiked over the past month.
Ethereum can be purchased on most of the same exchanges that sell Bitcoin. But the easiest way to buy Ethereum is through Coinbase, which allows you to link directly to your bank account.
Hope this helps,
Dave Zeiler, Associate Editor, Money Morning
Debbie, personally I feel it was good for long term the ETF was declined. Bitcoin has been gaining momentum the last 3 years all without the news of an etf. Countries are seeing the benefits of bitcoin, more companies are adopting bitcoin and blockchain technology and this has led to the price rise. We do not need the SEC grabbing hold of bitcoin in any form. It is decentralized and I pray it stays like that!
I am sure the other ETFs will be turned down as well.
This hard fork scenario is really dampening the price currently it seems.
I am impressed Bitcoin held so strong following the etf rejection, i thought we would see sub 1000 but we are still in the 1200's but falling with the hard fork scenario looming!
just my 2 cents!
To be sure the concept is more than intriguing (bitcoin). I have one question though as a coin collector is there any way you can get a hold of a real bitcoin that you can put in your hand…maybe a hologram ; oh eventually the Blockchain could have a ,combinational code, generate a registered Hologram given for overview by the (Sec); sort of a two step verification "The hologram" that Blockchain generates in its coding for every single transaction , the Twins ETF can get accepted and we could augment ourselves in to the realm of this new era… [ you never know maybe the miners could (holistically) mine bitcoin with a physical twist like that Pokemon game with a gps position on the globe generated by the " code ", on the map. Then we could turn it into a game show on TV. ] This way we all could make a "Holistic Financial Plan " and enjoy making (real or unreal) amounts of monies, commodities , wouldn't that be surreal… ! What's happening to our freedom, liberties and values as people, just to be totally hypocritical I would still like to know if I could get my hands on a real physical Bitcoin as I understand it's a limited mint and will have appreciation in the near future… Thks… :)
Hi Alberto,
Thanks for reading Money Morning. While Bitcoin is a wholly digital currency, that hasn't stopped people from creating physical Bitcoin tokens. One early version, Casascius Coins were first created in 2011 and had a hologram that peeled off to reveal their private keys to the amount of Bitcoin loaded on the coin. FINCEN forced the end of the sale of Casascius Coins in the US in 2013, saying they were illegal money transmitters.
Lots of other people tried making physical Bitcoins (always with the keys that represented the digital version somehow embedded), but regulatory pushback has kept them from gaining much traction. Still, if you really want to buy a physical Bitcoin they can be found on the Internet. The best place to look is eBay.
Hope this helps,
Dave Zeiler, Associate Editor, Money Morning
Could you please share the MYTHS about ETHEREUM?
Thank you
Thks, for your insights and research.