Bitcoin - Volatile, But Still a Great Idea
As Bitcoin continues to grow in popularity, and especially as it has garnered more attention with the upcoming halving on May 12, the investment thesis continues to be strong for this digital asset. The halving is when the reward for Bitcoin miners will be cut in half on that date (as it does about every four years), which basically reduces the amount of Bitcoin going into circulation, which should in theory increase the value of Bitcoin over time assuming demand remains the same or increases. By maintaining scarcity in its algorithm, Bitcoin avoids the problem that fiat currencies face when more money is put in circulation, resulting in inflation or a long term decline in the purchasing power of the currency. Â
Below is a chart of the value of the US dollar from January 1985 through April 2020. As you can see, depending on who you believe, the dollar now buys somewhere between 60% and 70% of what it did in 1985, due to the effects of inflation.
The main reasons for investing in Bitcoin include:
Store of value that may even be superior to gold due to Bitcoin's liquidity compared to gold, especially physical gold which is difficult to buy / sell, handle and store
Privacy and ease of completing payments and transfers, even for large amounts, without an intermediary like a bank
Hedge against dollar and other fiat currency depreciation which will be inevitable result of recent monetary actions taken to combat the COVID-19 economic downturn (Fed has implemented many programs that simply amount to accelerated money printing)
Programmed scarcity (halvings) will continue to drive value up as long as demand remains constant
Has outperformed many, if not most, other investments since it's inception at +6,300%
I still think the best approach is to keep your Bitcoin investments small and dollar cost average over time - maybe $100 to $200 per month or a little more if you can afford it. If you invest consistently, you can take advantage of price decreases, since Bitcoin is very volatile and can experience significant price drops in a short period of time. The key is to continue to accumulate over time and don't sell - this is truly a long term buy and hold investment.
I have invested in the so-called "alt coins" in the past, including Litecoin, Ethereum, Ripple and others but I believe Bitcoin with the largest market capitalization ($160Bn) is the best bet for long term adoption and ultimate success as an investment and medium of exchange. As such, I have limited my cryptocurrency investing to only Bitcoin starting about a year ago.
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  Stay safe, healthy and positive.
To see all my books on investing and leadership, click here.
Disclaimer: Â I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.