Is Bitcoin going to go up and down? The answers to this question are more widely varied than perhaps any other investment out there. One Wall Street veteran declares that Bitcoin could lose up to 90 percent of its current value over the next year, while a blockchain analyst says that it could triple in value over that same timeframe.
Given these wide range of expectations, it may seem difficult to predict where Bitcoin will end up by the end of the year. But that difficulty shows that at the very least, Bitcoin is a highly volatile, unpredictable investment which should only attract the boldest and most foolhardy investors. And all of the enthusiasm in the world cannot take away from the fact that even if you are seriously interested in cryptocurrencies or blockchain, there are far better ways to explore that interest than to invest in Bitcoin.
Why Bitcoin?
Countless analysts have talked elsewhere about why investing in Bitcoin has always been a bad idea. It is not an investment any more than buying Pokémon cards or antique comic books constitutes an investment. Anyone who buys a Bitcoin hopes to get rich by getting someone else to buy that Bitcoin at an even higher price, who hopes to get rich by getting another someone else to buy that Bitcoin at an even higher price, and so on. The greater fool theory has made early Bitcoin adapters rich, but to jump in hoping for an even greater fool at this stage is foolish.
Bitcoin enthusiasts may claim that Bitcoin has value because it allows people to send money to others easily and anonymously, to which I would point out that Western Union has existed for decades. But even if there is some value in that, consider that Bitcoin’s market cap today is over $190 billion. By comparison, Coca-Cola Company's (NYSE:KO) market cap is over $202 billion. This simple number should indicate how overvalued Bitcoin is.
But there is another question to ask as well: why Bitcoin in particular? Sure, Bitcoin is the first major cryptocurrency and is the one you have most likely heard of. But there are over a thousand other cryptocurrencies out there such as Ethereum, Litecoin, or Ripple. These cryptocurrencies emphasize different aspects compared to Bitcoin, or boast new services such as better anonymization or protection.
All these cryptocurrencies share many of the problems in that they are currently speculative vehicles as opposed to representing something real to invest in. But even if this turns out to be wrong, Bitcoin could very well end up being the Myspace to Litecoin or Ripple’s Facebook (NASDAQ:FB). There is far too much risk for Bitcoin to be a worthy investment, whether in the form of speculating or mining Bitcoins directly.
The Real Investing Trick
Hopefully, everything listed above should make it clear that investing in Bitcoin is a bad idea. But there are still ways to make money.
During the California Gold Rush, the men who got rich were not the gold miners, but the merchants who sold the miners flour, mining tools, and other important equipment. So what is the important equipment Bitcoin miners need?
Graphics cards. Bitcoin miners rely on graphics cards to mine Bitcoins, and in fact use so much energy that Wired reported on how Bitcoin could be the newest major contributor to global warming. Demand for graphics cards has led to higher prices and a boom time for graphics cards manufacturers. NVIDIA (NASDAQ:NVDA) has seen its stock more than double in the past 12 months partly due to cryptocurrencies.
The further upside to this is that because NVIDIA is a real company and not a speculative enterprise, its fate is not chained to cryptocurrencies. NVIDIA’s stock has continued to rise even while Bitcoin’s value has plunged. Even if Bitcoin’s value continues to use, miners will still continue to mine and use graphics cards. NVIDIA also benefits from more people playing popular video games like the surprise hit PlayerUnknown’s Battlegrounds.
NVIDIA looks like it will have a bright 2018, while Bitcoin may or may not. Which one is the better investment choice should be obvious.
Just a Fad
Cryptocurrencies are not going to go away, if for no other reason that there will always be a new currency which will convince people that it is the next big thing. And blockchain has some interesting applications outside of cryptocurrencies, with tech companies like IBM (NYSE:IBM) are exploring how it can be used.
But none of this represents a reason to speculate in Bitcoin. Take advantage of the cryptocurrency craze by looking into graphic cards manufacturers like NVIDIA or Advanced Micro Devices Inc (NASDAQ:AMD). But even after its massive plunge in value, Bitcoin remains massively overvalued and is the equivalent of getting rich off of baseball cards. If you feel like taking a bet on whether it will rise or fall, head to Vegas and bet on whether the roulette ball will fall on black or red. You will have more fun.