What on earth has happened to Bitcoin? It looked more dead than alive at the start of this year, but suddenly it’s full of the joys of spring.
Bitcoin is coming
Bitcoin is up around 50% this month, briefly soaring to a high of $8,390 at one point, its highest level since July 2018. And that’s on top of the 28% rally in April. Something’s happening, but what?
As ever with crypto currencies, everybody has a theory. Some put it down to capital flight, as money floods out of China on trade war fears. Growing tensions between the US and Iran have also been blamed.
Others say Bitcoin has been lifted by digital asset exchange Bakkt’s decision to start testing for Bitcoin futures contracts in July, which could boost its mainstream appeal. Digital currency exchange Coinbase is now offering Visa debit cards, so there’s another reason for you.
Or it could be down to the annual gathering of the blockchain and crypto community at Consensus in New York, between 13 and 15 May. Then there’s the perpetual rumour some unnamed major institution is ready to get stuck into cryptos.
There is talk of Bitcoin hitting $10,000, $100,000, or even $1m. Yet I still wouldn’t buy it because it’s too volatile and prone to crash. Dramatically. In fact, the higher it climbs, the more dangerous it becomes. I’ve tried trading cryptos and they’re liable to give you sleepless nights and drive you crazy as you wonder where it will go next.
Bit of backbone
I will say this in its favour, though. Bitcoin is showing surprising resilience, given that at one point it looked like its value might fall to zero. I’m beginning to believe it might just be here to stay, although I suspect regulators will give it a big slap if it gets too big for its boots again. Which is another reason why I’m staying clear.
Bitcoin isn’t an investment. Billionaire investor Warren Buffett called it right in an interview earlier this month with CNBC when he said: “It’s a gambling device. There’s been a lot of frauds connected with it. There’s been disappearances, so there’s a lot lost on it.”
Buffett made the point Bitcoin hasn’t produced anything: “It just sits there. It’s like a seashell or something, and that is not an investment to me.”
Bitcoin may be fun for a bit of speculation, but the stock market remains a vastly superior way to build long-term wealth, because its constituent members do actually produce something. BP pumps oil out of the ground. Centrica heats your home. GlaxoSmithKline makes life-saving drugs and easyJet will take you on holiday. Diageo fills your drinks cabinet. Just Eat brings you dinner. Next sells you clothes. I could go on.
What does Bitcoin do? It gives you somewhere to hide your money, plus a bit of speculatory fun. And that’s it! The vast majority of your invested wealth should go into the stock market, and stay there.
Update: Bitcoin has crashed to $7,200. As I said, it’s too volatile for me.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019