Now, before you ask; no, I don't own bitcoin or Ethereum, or any other crypto-based currency.
I thought we'd best get that out of the way because recently a number of prominent business and financial commentators have publicly declared that they think bitcoin is worth a punt as an investment.
From an investment perspective that worries me. Here's why. This is a direct email quote from a good friend I received yesterday:
"A lot of talk online from major CEO's and investing firms that bitcoins are set to increase even further…"
My friend above has no prior investing experience. That is an important point.
The comment screams about the speculative way people are viewing crypto-currencies right now. It could have just as easily come from a colleague, a team mate… even my mum.
Fueling the hype
I can understand the hype around bitcoin because it is new and exciting.
But when you fuel the fire with a bunch of stories about 15-year old bitcoin millionaires and 3000% price increases, people start to fear they are missing out.
In investing greed and fear tilt us away from common sense, the worst possible basis for making decisions.
When respected investors and commentators start to publicly join in, it gets legitimized to the people who look up to them. People with usually far less experience, and lower means, to take risks.
I don't currently invest in any form of digital currency, and here are a few clear reasons why:
- I don't fully understand it.
- I can't predict it.
- I can't value it.
- It doesn't pay interest or dividends.
- I'm not a trader and don't have the time to monitor volatility.
- I don't want to be taking currency or commodity risk.
I'll see your speculative currency and raise you great businesses
All these problems I can get around by investing in great businesses.
To get exposure to rapid, long-term growth prospects I own shares in XERO FPO NZX (ASX: XRO) and PUSHPAY FPO NZX (ASX: PPH).
If I want to add to my income I can buy the fully franked dividends of Mantra Group Ltd (ASX: MTR) or Telstra Corporation Ltd (ASX: TLS).
None of these options will make me an overnight millionaire, but I do have visibility of the risks, a sense of intrinsic value and I can build an intimate understanding of what impacts future price.
I just can't get that with bitcoin.
