Should I Invest in Bitcoin? Why Warren Buffett is Wrong

Over the last three months, my Bitcoin investment has tripped – as the value of Bitcoin has shot up from $5,000 to over $15,000. With Bitcoin up almost 2000% this year, I know many people are wondering if now is a good time to buy, or if the ship has sailed.

So today, I am going to answer the question: Should I invest in Bitcoin?

Photographer: Norm Betts/Bloomberg News

With experts like Warren Buffett saying it's a bubble, should we all stay clear? Not necessarily.

I've been hesitant to write about Bitcoin for some time because my goal is to assist my readers in growing wealth intelligently. While I certainly believe that Bitcoin has risks – and you should only invest what you can afford to lose – I have seen a huge upside, and I believe I would be doing my readers and friends a disservice if I didn't tell them what I thought about Bitcoin.

I recommend reading this article before investing. However, if you're ready to invest now, the two tools I use to buy Bitcoin are:

Coinbase: This website/app is the leading platform for buying and selling Bitcoin, and operates a bit like PayPal. Just connect your bank account or credit card and you're good to go. Right now A Richer You readers can receive $10 worth of Bitcoin if they set up an account and invest $100. Claim $10 in Bitcoin now.
Stockpile (buying the GBTC Investment Fund): GBTC is a Bitcoin investment fund that trades on the stock exchange. While you can buy this fund on most trading platforms, I like using Stockpile because they allow you to buy in dollar amounts rather than shares (which are priced over $1,600 right now) – for just $0.99/trade. Right now Stockpile will give you $5 to invest in any stock (including Bitcoin) just for signing up! Get your $5 to invest in Stockpile.

Because I'm not a financial adviser, take my advice with a grain of salt. In fact, even when you do talk to a financial advisor, don't assume they have all the answers.

No one can predict what will happen tomorrow with 100% accuracy. All we can do is make the smartest decision based on the information we have and hope for the best (this is true in life, not just investing).

But sometimes, taking a risk can pay off! For example, take this guy from the Netherlands who sold everything he had and moved his family to a campsite in October of 2017. He then invested all of his money in Bitcoin.

People called him crazy, but he's just tripled his net-worth in three months – while most of us Americans have blown money on Black Friday deals.

Of course, even though I am an advocate for Bitcoin, I don't recommend selling everything to invest in cryptocurrency. Here's why…

The risk associated with Bitcoin

From 2013 to 2015, Bitcoin dropped from a high of $1,100 all the way down to $200. And it could drop again.

Bitcoin's only value is the value that people place on it. And with the incredible fluctuations we've seen with Bitcoin in the past, it's not unreasonable to see it drop again. In fact, it can drop 20% in a day.

Because of this instability, I agree with traditional investment advisors. It is not where you should place your retirement savings.

Just a few weeks ago I was tempted to borrow from my retirement account to buy Bitcoin! Although the allure of doubling my money was hard to pass up, I decided against this impulse. And I recommend you do the same.

Only buy Bitcoin with money you are okay losing.

However, I also believe Bitcoin and other cryptocurrencies will continue to increase in value. If you only invest money you can afford to lose, and you play the long game, I believe you'll continue to see your Bitcoin investment go up. Here are a few reasons why I'm bullish on Bitcoin.

Again, I must caveat this by saying that I am not a financial advisor, and people much smarter than myself will tell you not to invest in Bitcoin.

However, those same people have been talking negatively about Bitcoin from the beginning – while Bitcoin investors have seen $1 turn into $1 million (boy wouldn't that have been nice!).

So, from my current understanding of Bitcoin, here is why I believe it's still a great investment.

1. Bitcoin is not a company, it's a cash / gold equivalent

Warren Buffet doesn't like Bitcoin because he says “it's not a value producing asset”. But neither is cash or gold. The only reason the US dollar has value is because people perceive it as having value. Otherwise it's just tiny piece of paper.

As you'll see below, there are many benefits of Bitcoin as a digital alternative to traditional cash/currency. And because enough people have determined that it's valuable, I see that value remaining.

2. There's a limited supply of Bitcoin

There will only be 21 million Bitcoin ever mined. What does that mean? Like gold, it's a limited resource. Gold has continued to increase in value over the years, and many people (including the first Bitcoin billionaires, the Winklevoss brothers) see Bitcoin as a digital gold.

This limited supply of Bitcoin means that the price will continue to rise as more people purchase the currency.

3. (Most) investors are only investing what they can afford to lose, and holding their investments long-term

At this point, most investors are (wisely) only investing what they can afford to lose. Why is this beneficial? I believe that this means investors will be less inclined to pull their money out when it does dip.

With the stock market, a drop can result in someone losing all of their retirement savings – which causes many investors to sell the moment the market looks unstable.

Meanwhile, with Bitcoin, most people who have a few hundred or thousand dollars invested may be more willing to brave out a small dip.

Furthermore, most Bitcoin investors are in it for the long game. When investors see that Bitcoin has 30x in value over the last year, most are interested in holding the currency, even during dips, with the anticipation that it could be 30x higher for them by this time next year (although the gains probably won't be that high).

4. Many investors have automated recurring investments

There are many Bitcoin fans who have budgeted Bitcoin into their regular spending. It's not uncommon for someone to schedule a $25-100 deposit into their Coinbase wallet after every pay check.

These automated recurring deposits mean that more money is continually flowing into Bitcoin, increasing the price even further.

In fact, part of my budgeting for 2018 includes regular purchases of Bitcoin and other cryptocurrencies.

5. Bitcoin is growing in popularity among mainstream investors

Traditional investors can already use investing sites like Stockpile to buy into the Bitcoin Investment Trust (GBTC).

Meanwhile a futures market has just been approved – bringing Bitcoin even more into the mainstream. And there's discussion of a Bitcoin ETF – which would make it even easier for everyday investors to buy into the digital currency.

If Bitcoin does become a staple in retirement accounts, it will certainly create a spike in value as more money flows into the currency. However, this could also lead to lower returns in the long run (after a big increase in value in the short-term).

6. More businesses and startups are accepting Bitcoin and other cryptocurrencies

Bitcoin was created to be a currency, not an investment. And more businesses are starting to accept Bitcoin as a method of payment.

Meanwhile, there is an ever-growing list of startups that are built around Bitcoin. This acceptance of the currency by businesses is what legitimizes its worth.

7. Bitcoin is not tied to any one government or currency

Another benefit of this cryptocurrency is that there is no government backing it.

This helps insulate it from any one economy's financial troubles.

In fact, I believe that Bitcoin will likely increase in value if the US stock market begins to dip and investors look for alternative places to store their money.

Without a government to control the currency, it's harder for legislative decisions from a single government to have a long-term impact on the currency.

8. Bitcoin removes trade borders

Transferring money from one country to another can get very expensive. However, Bitcoin exchanges cost the same regardless of location. You can send money to your neighbor, or to the other side of the world, without any extra costs.

While this would be valuable at any point in time, with the global growth of nationalism, Bitcoin may provide a way to make international transfers easy if governments begin restricting the freedom of their citizens.

9. Bitcoin is untraceable (like cash)

The initial rise of Bitcoin was due to its inability to be traced.

While all of our bank transfers and credit card purchases are tied to our names, accounts, and social security numbers, Bitcoin is like cash and cannot be traced.

A digital world has little use for physical dollar bills. However, there are many reasons (not all ethical) why a digital world would still want a form of currency that cannot be easily traced.

But it's not just drug dealers who are attracted to this – anyone who doesn't like the idea of a government being able to control who buys and sells finds a degree of appeal to a digital cash equivalent.

10. Bitcoin is validating a technology that will revolutionize the way we do business

Without getting into too much detail, Bitcoin uses blockchain technology – which has the potential to decrease transaction costs for everything (think buying land, making purchases online, and establishing agreements).

Bitcoin is the first form of blockchain. However, blockchain technology is sometimes seen as the next greatest invention since the internet itself – as it builds an entirely new level of security around transactions.

In short, blockchain is here to stay, and Bitcoin, as an enabler and megaphone for this technology, looks like it will be around for a while.

As we wrap up this article, it's only appropriate for me to answer the question “How do you invest in Bitcoin?”.

While purchasing Bitcoin used to be relatively complex, thanks to newer websites and apps available today, buying Bitcoin is as easy as investing in the stock market or sending money with PayPal.

In the US, the most popular way to invest is to buy Bitcoin with Coinbase. Not only does this app make it incredibly easy to purchase the three most popular cryptocurrencies, but it's also FDIC insured – meaning that your investment is safe from hacks/etc., up to $250,000.

Although there are other platforms available, Coinbase is the easiest to use and most secure at this point (as it's FDIC protected).

Complete honesty: At no additional cost to you, we earn a commission if you use this link to sign up.

As mentioned earlier, you can also purchase Bitcoin through the GBTC investment fund that is available on many investment platforms, including Stockpile.

The reason I like using Stockpile is because it allows the purchase of fractional shares and actually allows the creation of investment accounts for kids!