I am thinking about purchasing Bitcoin [cryptocurrency] as an investment. What do you think? —Robert L. ’20, finance major
Erkis: Bitcoin is the most well-known of the many cryptocurrencies that currently exist. Cryptocurrency is essentially electronic money not backed by any government. It is a relatively new invention and requires quite a bit of trust at this point. I tell students in my finance class that money only has value because other people accept it for purchases. The issue at this point is that Bitcoin as a cryptocurrency is not widely accepted.
That being said, Bitcoin does have value and the dollar value of a Bitcoin is widely published. On Jan. 25, one Bitcoin was worth about $8,351. The value has fluctuated widely. For example, in 2018 the value of one Bitcoin briefly was over $20,000 and as recently as 2017, one Bitcoin was worth less than $1,000. I have not seen many goods or services that can be purchased with cryptocurrency, but there are some. I expect more and more goods will be available to be purchased with cryptocurrency over time.
Bitcoin and Bitcoin Cash are names of separate cryptocurrencies with others called Ethereum and Ripple, and there are many more. Facebook recently talked about starting a cryptocurrency and even governments are starting ones. It is quite confusing, but that is normal when something is just getting started. However, with newness comes extreme price moves and volatility like I discussed above. This is because it’s not clear how much cryptocurrency is worth.
What is clear is that cryptocurrencies are becoming more widely accepted as investments. Purchasing any cryptocurrency comes with extreme risk. Yes, there is a chance for gain but also for big, big losses. This is essentially gambling at this point as it is not possible to evaluate what cryptocurrency is worth. Therefore, investing in Bitcoin is not for novice investors. I personally do not own any positions in Bitcoin or any other cryptocurrency.
If you want to purchase Bitcoin, you can purchase some directly from a number of places. A way to indirectly own Bitcoin is to buy stock in a trust that holds Bitcoin. One is called the Grayscale Bitcoin Trust (ticker symbol GBTC) which is traded in the over-the-counter (OTC) marketplace. Remember, this is a very volatile investment which comes with significant risk of loss and is not for novice investors.
Lubomirski: I remember when Bitcoin used to come up in the news when someone managed to make thousands from it. I was confused as to how it could even be worth real money because Bitcoin is basically just computer code. Why would anyone pay money for that? As Professor Erkis mentions, this skepticism contributes to the price of a Bitcoin being highly volatile. I don’t think I’ll be investing in Bitcoin until it has a more stable purpose and position in the market. I will focus on a stock market index that was discussed in prior columns. Bitcoin is just too risky.