Q: We’re hearing a lot about Bitcoin lately. Are we missing out on something big? Should we own Bitcoin?
A: In a word, no.
Bitcoin’s price has no relationship to any fundamental measure of economic value. It generates neither earnings nor cash flow, making it not only impossible to value but—as an investment—virtually devoid of value.
As a currency, Bitcoin is plagued by many risks, the first of which is regulatory. Bitcoins are not backed by a government and may be used for black market transactions, money laundering, or tax evasion. As a result, governments may seek to regulate, restrict, or even ban the use and sale of bitcoins.
The price of Bitcoin has also been highly volatile, soaring generally but crashing often. Since 2013, Bitcoin’s price has plunged by more than 20% at least twenty times and as much as 80% in a single day. Even if Bitcoin was accepted at more than just three of the top 500 global online merchants, what reasonable consumer can plan their purchases with such a wildly fluctuating “currency?”
Bitcoin’s popularity is rooted in its dramatic price rise. In 2017, it soared nearly 1,600%. To put that in perspective, Bitcoin’s one-year price surge was three times as large as the decade-long rise of the NASDAQ Composite of tech stocks in the late 90s—and nearly six times bigger than the boom in Japanese stocks in the late 80s.
At the end of the day, Bitcoin does not provide the inherent return stream that makes core asset classes such as stocks, bonds and real estate attractive for long-term investment. A diversified portfolio—not the latest speculative investment like Bitcoin—remains the single best way to protect and grow wealth over the long term.