The last time this many people reached out to me about Bitcoin, it was 2017. That was leading up to its past peak of almost $20,000. And I was roped into sending out close to half a million dollars worth of Bitcoin.
At the end of 2017, the Bitcoin bubble started to deflate, along with public euphoria surrounding it. This Robinhood chart in this video shows Bitcoin’s price over the last five years…
Since the past peak, it’s been a bumpy ride. Bitcoin dropped down close to a low of $3,000 in 2018 but since, it’s been climbing higher. In the last year alone, it’s up close to 100%. And as a result, it’s catching more headlines again.
Bitcoin Bubble 2.0?
These recent gains are why so many people have reached out to me. I was on the phone two days ago with a 90-year-old who was asking about how to invest in cryptocurrencies. I’ve overheard Bitcoin conversations in the grocery store and even a family member has reached out about buying Bitcoin (I have a small family with no first cousins. If it was bigger, I’m sure even more would be reaching out).
When an investment opportunity has become this hot, it’s usually best to stay away.
Now, Bitcoin could easily continue its upward climb but I won’t be buying anytime soon. Instead, I’ve found a better way to gain exposure to cryptocurrencies. It’s a much safer approach. And before I show you exactly how I’m investing, let’s take a closer look at what’s really behind the cryptocurrency craze.
Bitcoin Background and Feedback
Well before Bitcoin and crypto currencies became a mainstream topic, I was doing a deep dive. Over five years ago, I worked in Beijing with an alt cryptocurrency company. After that experience, I became even more excited about cryptocurrency potential, but I realized Bitcoin had too many flaws. And a more successful alt cryptocurrency will likely come along.
In one of my earlier videos, I covered four reasons why Bitcoin will fail as a currency. And for the most part, the points were well received and I got some great feedback like this…
That is the best anti bitcoin argument I have heard.Chris Russ
Glad to see a different view. You got a new subscriber! Thanks for being sensible. I love cryptocurrencies like many of the others who hype it. But truly seeing the downsides will help us succeed in the investing world too. Keep up the great work!Biogaiden 93
Thanks for such rational information. We really appreciate it.Elma Ross
I respond to most of your comments individually and here again, thanks for all of your sensible feedback. It really motivates me to keep researching and sharing what I learn.
Most of the negative comments I got came from people who thought I was talking about Bitcoin in all use cases. But the four flaws I covered were looking at it from a widely adopted currency perspective.
One common theme people pointed out is that they treat Bitcoin similar to physical gold. They want to invest in it as a way to protect their savings from the government’s expanding reach, as well as protect it from inflation.
Now, the argument for keeping savings out of the government’s reach is pretty solid. Anyone can see every Bitcoin transaction ever made, but we don’t usually know who’s behind them. That’s largely thanks to public and private key cryptography.
But on the inflation and maintaining value side, Bitcoin would be a terrible hedge. Many gold bugs fail to realize that gold is also a terrible inflation hedge. They’re both too volatile. In any given year, three years or even five years, their price swings are too unreliable. This is one of six reasons I think gold is a bad investment, at least when compared to stocks.
If your goal is to hedge inflation to maintain your purchasing power, treasury inflation protected securities (TIPS) would be a better way to go.
Looking at Two Types of Bitcoin Investors
The main issue I run into is that most people reaching out – who want to invest in Bitcoin – don’t have any clue what’s happening behind the scenes. They see it going up and others hyping it up, so they want in on the action. And larger investors take advantage of these less savvy retail investors.
Now, you don’t need to understand an asset to make money on it, but on average that’ll probably lead to a losing approach. It’s easy to get caught up in potential gain possibilities and underweight or completely ignore the risk.
So, if you’re a small investor like me, it might be best to constantly revisit and improve your investment strategies.
Overall, Bitcoin’s network continues to build. And that’s where the real money is. PayPal recently announced its own cryptocurrency service for Bitcoin trading. That’s a huge vote of confidence and moves like this have helped push Bitcoin higher.
Many companies have stepped in to grab a piece of the growing cryptocurrency pie. It’s a trend that’s here to stay. And similar to the past gold rush, more winners will probably emerge from creating the surrounding services. For example, some gold miners struck it rich… but many of the winners came from selling the picks and shovels, as well as owning the saloons.
So, one of my favorite ways to gain exposure to cryptocurrency is by investing in service companies with already established businesses. And one of my top-performing investments is Facebook. It’s a proven business model with massive cashflows. This is a huge safety net while it’s investing heavily into its own cryptocurrency efforts such as Libra.
The same is true for IBM and many other top tech companies. My most recent investment into Intel even benefits some from Bitcoin mining and other cryptocurrency trends.
Sure, these aren’t direct plays into cryptocurrency. I’m not going to see outlandish gains in the short-term. But I’m not as likely to see huge short-term losses either. They’re a safer way to gain exposure. This investing approach is cherry-on-top investing.
Overall, I’m excited to see further blockchain application and innovation. I’m an optimist on that end. And for Bitcoin, the new adoption is great to see but it’s got some big barriers to overcome. Check out one of my early Bitcoin videos to learn more. Instead, I think some improved cryptocurrencies will eventually dethrone Bitcoin. As we’ve seen in the past, finding consensus to fork and make improvements isn’t likely.
As always, if you found these ideas thought-provoking, I’d really appreciate it if you’d drop a comment down below or share it with friends.