Bitcoin is famous as being the largest cryptocurrency across any metric you can think of. It’s got some crazy price action to the upside, and though its been declared “dead” many times over the years, it’s still around. So what’s the deal with it now? Is bitcoin a good investment, or did you miss the boat on those eye-popping returns?
Once you discover the inherent properties of bitcoin, it’s easy to recognize that bitcoin is always a good investment. Regardless of the price, bitcoin allows you to own private digital money that cannot be debased and does not require permission to spend. No other asset on the planet achieves do that.
Is bitcoin a good investment? The simple answer you’ll get from any bitcoiner, is yes. Regardless of what year it is or what’s happening in the world, yes, bitcoin is a good investment. There is no other asset on the planet that has the same properties of bitcoin, so you should probably own at least a little bit.
Of course, I’m biased. I’m a bitcoiner.
If you choose to invest in bitcoin, the #1 piece of advice I can pass on to you is to craft your bitcoin allocation in relation to your level of knowledge. Volatile price action to the downside can shake out even the loudest bitcoin bulls, so you should be prepared for “bitcoin winter” at any moment. If you can hang long enough through the bear market, you could be rewarded with 10x or 100x gains during the next bull run, so it may be worth the wait.
Bitcoin Investment Pros
- high returns
- can be sold for fiat cash or traded directly for goods or services
- low cost to entry
- low cost to hold
- limited supply
- can be securely held without a custodian
- can be private
- can send and receive person to person like cash
Bitcoin Investment Cons
- requires education to understand the asset
- not regarded as a “serious asset” in the mainstream
- self custody requires personal responsibility (no do-overs)
- custody on an exchange exposes you to exchange solvency and security risks (no SIPC insurance)
- withstanding volatile downside price movements require mental fortitude
Is Bitcoin A Good Investment?
Let’s first look at what type of investment bitcoin is.
Bitcoin is defined in the tax code as an asset, meaning you have to pay taxes on capital gains. This is unlike a currency, which can be traded freely without taxes on any monetary value gained. Bitcoin is also defined as a commodity by the CFTC. The SEC has made several comments explicitly saying that bitcoin is not a security, meaning it won’t face the same type of regulation as many other altcoins on the market.
The High Returns Are Hard To Ignore
Let’s get straight to the point. One of the main reasons to invest in bitcoin is that you can outperform every other asset class. Of course, past performance is not a guarantee of future returns, but if you buy into the bull case for bitcoin, then you can imagine what 100x or 1000x returns would do to your portfolio.
Of course, you can’t predict what the future will bring. Price predictions predicting massive returns are fun, but you can’t count on them within any given time frame.
Consider, however, that the same is true of any investment. The same goes for index funds, real estate, and other traditionally recommended investments.
What you can do is look at what’s driving an assets price growth, and make up your own mind as to whether or not the asset will continue to grow. There’s a pretty solid case that a bitcoin allocation to a traditional 60/40 portfolio can boost its performance. However you feel about bitcoin, it’s worth considering beating “standard” market returns.
If you understand what makes bitcoin valuable and it’s advantages over other types of assets, then I think it’s reasonable to conclude that some section of the world population will want to own bitcoin. My guess is that a lot of people will want to own bitcoin.
Are you going to wait on the sidelines and watch as bitcoin gains global adoption over the next 20 years, or are you going to buy some and watch its value grow alongside the adoption curve?
What Other Investment Can 100x in the next 10 Years?
Maybe you don’t even buy into the mega bull case for bitcoin that it replaces the dollar as the premier global money, but you get that it has a use-case as an alternative asset, a non-sovereign store of wealth, or some kind of censorship resistant digital money. Basically, you understand that it’s worth something to someone.
Since its inception, bitcoin has been no stranger to 1000x returns, but let’s not even assume we’ll get anywhere near that.
Could you imagine a paltry 100x return in 10 years as more people discover bitcoin? It’s possible. Regardless of how you look at it, if you believe that bitcoin will have some kind of value in the future, it’s possible that the most well-known cryptocurrency could 100x over the next decade. The key here is the possibility.
Now, pick any mainstream stock. Could it 100x in the next ten years? Apple just became a 3 trillion dollar company. Can it become a 300 trillion dollar company over the next decade? Very unlikely.
The chances of you doing 100x in the stock market is very slim. For the average person investing in index funds, the goal is 10%, and that’s about as good as you’ll do.
Investing in low-cost index funds is still the standard mainstream advice, and probably what you should follow as long as you really don’t care about making the most money possible from your investments. Index funds are “safe”.
However, if you’re looking for outliers to boost your returns, bitcoin fits a nice niche of being outside enough to outperform, while not being insane as something like a meme stock, biotech companies, dog-themed cryptocurrency, or penny stocks.
You could find some stocks that’ll do 100x or even more, but you have to do the research, analyze financials, gain high conviction, and all that. It’s much easier to just buy some bitcoin.
Bitcoin Investment Doesn’t Have To Be All Or Nothing
There seems to be a lot of hesitancy when investing in bitcoin due the the fact that the whole “bitcoin thing” might not work out. What if I buy some and the government bans it?!
Well, the answer here is risk management. If you aren’t 100% sure that it’ll succeed, then don’t invest 100% of your money into it.Size your allocation according to your conviction. Buy enough bitcoin so that you can still sleep at night. If that means 1% or even just 0.5% of your total investment value, then so be it.
You don’t need to be the crazy bitcoin guy. Bitcoin investing doesn’t have to be all or nothing. How about just start with a little bit.
Bitcoin Price Volatility Is Your Friend
I looked a bunch of articles about whether bitcoin is a good investment or not just to see what other people were saying about it, and I was surprised. Pretty much unanimously, everyone agreed that the volatility of bitcoin is a negative aspect.
This is why mainstream articles about bitcoin are full of shit.
The volatility of bitcoin is one of the things that makes it a great investment. High volatility means that you’ll have multiple chances to score a favorable entry point into bitcoin, regardless if you are trying to time the market or simply trying to dollar cost average into a position over time.
For example, let’s say you bought in 2017 at the all time high ($20,000). You got euphoric, dumped 1% of your investment portfolio into bitcoin, then watched the price plummet 85% down to $3500. Ouch!
What that actually means is that then had the next 3 years until the 2020 bull run to accumulate more bitcoin to reach back up to your intended 1% allocation. Congrats. You have a lot more bitcoin than you did before.
When bitcoin hit an ATH of $69k in 2021, you’d probably be pretty happy. Even in the 2022/2023 bear market as we sit at $30k, you’d still be happy you collected more bitcoin in the $3500 price range.
Those insane runs in price typically only last about a month out of every 4 years, so as long as you are not completely nuts and mortgage your house in that period, you’ll be able to comfortably add to your bitcoin position over a period of years until the next bull market.
How Much Risk Are You Willing To Stomach?
All of that is easy to say, of course, but emotions run high during euphoric bull markets and deep bear markets shake out a TON of people. That’s the reality of the situation. You really need to have a strong stomach and clear investment goals to come out of a bear market unscathed.
People sell for a variety of reasons, but the top ones are:
- listening to FUD
- unexpected expenses
- trading with leverage
- expecting to buy in at a lower price
- lack of conviction
- peer pressure from friends or family
This is why I push so hard on this blog that anyone investing in bitcoin, especially those whose primary interest is simply making money, should learn about what bitcoin actually does and what it has value. Without that foundational level of knowledge, seeing your investment down 85% is going to shake you out of the market.
If you can only stomach seeing 1% of your portfolio at most take a nose dive, then size accordingly. If you’re 25 years old earning $100,000 per year, then do you really care about 5% or 10% of your investments are down? You’re not planning on retiring for another four decades.
Where Do You See The Future Of Bitcoin?
Aside from all the price stuff, whether or not bitcoin is a good investment or not comes down to where you see the future of bitcoin.
Do you see people using bitcoin ten years in the future? If so, you probably want to get some bitcoin.
Ten years is a lot of time. A lot can change over a decade. It’s hard to imagine a world where you couldn’t get Amazon Prime delivered to your doorstep in 24 hours, but that was the world we lived in a decade ago. Two decades ago it was 2003 and Amazon only sold books.
What the hell is bitcoin going to be like in 20 years.
So how do you think it’s all going to play out? If you have no idea, then read a bit about it and make up your mind. There are plenty of great bitcoin books. You’re an investor, considering bitcoin as an investment, so do your own research and get an opinion on it.
If you think bitcoin going to fail, I recommend that you clearly define under what circumstances that will happen? Catastrophic bug? Government ban? Outcompeted by another coin? These ideas have all been discussed online extensively via blogs, articles, video, substacks, social media, and forum posts. Look up your questions, and there are many answers out there. It’s likely your idea isn’t new, and you can read up on debates on the topic.
Bitcoin As A Long-Term Investment
After more than a decade of not failing, you have to start to wonder if bitcoin is actually succeeding.
For a serious investor, Bitcoin makes the most sense as a long term investment. Most bitcoin traders do not trade bitcoin as an exclusive source of income, because you simply cannot make reliable money guessing which way the price of an asset is going to go.
Successful day traders in bitcoin are so few and far between, that I can’t think of a single one. Anyone you run across on Twitter who claims to be making money trading likely has a paid group from which they earn money, recommends affiliate programs for the tools they use, or are simply deleting Tweets and LARPing. They have to be getting income from somewhere.
Bitcoin is extremely volatile. To the average novice bitcoiner, the strategy to buy and hold for a period of 5-10 years minimum is pretty good advice in my opinion.
Have you ever held any investment for longer than 5 years? If you’ve never held anything for longer than ten years, consider that a decade is a long period of time and a lot can change.
Risks Associated Investing In Bitcoin (Price)
I see it as a very unlikely scenario that the price of bitcoin simply goes to zero. As of 2023, we’re far beyond trying to argue that in any serious way. How the price ends up in the next decade or two is anyone’s guess. It’s not a binary option that would say bitcoin is a smashing success or utter failure. We could languish around the current $30,000 price for 10 years. Or hit $100,000 next year, and never go anywhere after that.
I’m not about price predictions.
So even though I don’t see the price going to zero, and not going to make any specific price predictions in this post, I do think there are some risks to the price moving forward that should be understood if you are considering investing in bitcoin.
Political Risk
Bitcoin is inherently a political investment because it’s money without censors. With our current banking system, politicians, regulators, and law enforcement is able to step into any bank in the country and monitor or even stop payments if they deem it a threat. While that may seem Orwellian to spell it out like that, many people consider that a feature of our current payments networks, not a bug. It keeps us safe they like to say.
So when a payment system emerges that cannot be censored, no matter how horrific the transaction, those with something to lose are going to attempt to do something about it.
We already see this around the world with politicians trying to encourage bitcoin miners to censor transactions, or limit who can send bitcoin to whom.
Though laws cannot stop bitcoin per se, they can alter the perception of bitcoin, or make using bitcoin more difficult.
Exchange Risk
If you keep your bitcoin on an exchange, like many newcoiners are wont to do, you take on a massive amount of risk from the exchange. The main two ways an exchange can lose your bitcoin is through negligence or fraud.
If an exchange is hacked and the bitcoin is stolen, they can’t exactly claw it back. The bitcoin is just gone. Maybe if they have insurance they can get you a fiat payout of the value of your bitcoin at the time of the hack, but that’s a big if. Unlike fiat, they can’t press a button and make more.
FTX and PrimeTrust are a perfect example of exchange and custodian fraud, where the people holding your bitcoin were actually taking the money and then investing it in speculative assets to try to earn a profit. When you hold bitcoin on an exchange, you may see a number representing how much BTC you own, but you have no idea that money actually exists until you withdraw it to your own custody.
Footgun Risk
On the topic of self custody, if you get too wild or don’t pay enough attention, you could footgun yourself and lose your own bitcoin. Again. No help desk. No clawbacks. No do overs. You screw it up and it’s gone.
That sounds a little unnerving to someone new to bitcoin, but it’s not as bad as it sounds. The basics of using bitcoin is quite simple to grasp for most people. You don’t have to be super technical to buy bitcoin, send it to your own wallet, and update the firmware of your wallet from time to time. If you can operate a smartphone, you can operate a bitcoin wallet.
Still, the risk exists. Like cooking with freshly sharpened knives, starting a campfire, driving a car, or swinging a sledge hammer, when you use dangerous tools, just make sure you use them right. Plenty of people lose fingers, toes, and every year. Just don’t be one of them.
How High Can Bitcoin Go?
Although you cannot accurately predict the price of bitcoin within any specific time frame, there are many bitcoin price predictions that are pretty exciting to think about. Of course, the million dollar price prediction is a pretty common one, but is there any truth to these sky-high valuation models?
The main premise of most of these future valuations is that bitcoin will absorb the monetary premium of other asset classes like real estate, gold, art, collectibles, and equities.
What that means is that bitcoin as an asset has such attractive properties compared to other assets we currently use to store wealth, that people will not just stop buying those assets, but will actually sell some portion of them in order to own some bitcoin.
Real estate is a great example. Why take on all the risk of renters, property taxes, and local government political risk when you could own a purely digital asset that is more liquid and cheaper to hold?
So how high can bitcoin go? It really depends on your time frame. I think most bitcoiners would agree that somewhere within the $100,000’s range over the next decade is pretty conservative. Of course, being vague here, since that could be anywhere between $100,000 up to $999,999. Again, I’m not trying to predict a price.
Is Bitcoin a Good Investment Despite the Risks?
After reading all that, do you think bitcoin is a good investment despite the risks? My personal opinion is that bitcoin’s high rate of return coupled with its unchanging monetary policy and slowing issuance rate makes it a great long term investment. Bitcoin has been around long enough and it continues to work as intended, and there’s no reason to believe that will change any time soon.
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