The Bitcoin Fantasy

The electronic currency, known as Bitcoin, is all the rage. It is an alternative to money that is tied to a political system. It is gaining acceptance by all types of buyers and sellers. It is also extremely volatile. The current balance of all Bitcoins is about $1 billion. This compares to the $1.2 trillion of U.S. dollars that are in circulation. This lack of liquidity produces some extraordinary price volatility: $230 in April of this year, less than $70 in July, and then it soared to $1,230 in the fourth quarter before dropping back to about $1,000.

This kind of price volatility is the Promised Land for speculators who pretend to be investors. They can make a lot of money if they can guess the next move. It is the guessing that makes them speculators.

There is a fundamental investment principle that should not be ignored. Do not invest in products if you do not understand the underlying principles that create price fluctuations. There are powerful forces at play that you may not understand. And, what you don’t understand can produce major investment losses, and you don’t even know why it happened.

Wait a year and re-visit Bitcoins. Perhaps by then you will have a better understanding or you have found a Bitcoin expert to invest for you.

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