Bitcoin’s price is rising again. After falling below $6,000 in late June (down from nearly $20,000 in December), the cryptocurrency has surged to $8,200 today, a gain of approximately 40%. So what has caused the price to suddenly spike and is now the time to load up?
Bitcoin ETF
Many have attributed its recent strength to the expected approval of the first bitcoin exchange-traded fund (ETF). In June, US asset manager Van Eck Securities Corp and blockchain specialist SolidX announced plans to launch the VanEck SolidX Bitcoin Shares ETF, which would be listed on the Chicago Board of Exchange (CBOE). At the moment, investors are waiting to hear whether the US Securities and Exchange Commission (SEC) will approve the ETF, however, if it is given the green light (many people think it will be), the ETF would make it considerably easier to buy into bitcoin as people would no longer have to deal with the clunky, untrustworthy cryptocurrency exchanges.
Clearly, this is big news for bitcoin. So is now the time to buy?
Steering clear
Personally, I’m still bearish on the cryptocurrency and won’t be touching it. Here’s why.
For starters, in my view, bitcoin is neither a ‘currency’ nor an ‘investment’. To have value as a currency, it would have to offer stability and the ability to buy good and services with it. Right now, it offers neither. For example, between mid-December 2017 and late June, bitcoin’s price fell approximately 70%. Not much good if you want to buy a house with it then, is it?
Can I go out and buy goods and services with it? Nope. While my local corner store accepts all major credit cards, the last time I checked, it didn’t accept bitcoin. So, as a currency, it is pretty lousy, to my mind.
Impossible to value
Yet it doesn’t look like an investment either, in my opinion. That’s because it’s impossible to value.
With most investments, such as stocks, businesses or property, you can work out a fair value, using some kind of model or ratio. For example, with stocks, analysts create models that look at earnings and cash flows to generate a fair value for the company.
However, bitcoin doesn’t produce any earnings or cash flows. So what is it really worth? $100,000? Or is it actually worth zero? I don’t know, and I’m not willing to burn my hard-earned money to find out.
If you’re buying bitcoin as an investment, you’re simply hoping that someone else will come along and buy your bitcoin from you for a higher price than you paid. That’s not a sensible investment strategy. In fact, in finance, this is referred to as the ‘greater fool’ theory.Â
With that in mind, I’ll be steering well clear of bitcoin. There are plenty of other ways to make money, including the stock market, which has delivered amazing returns for investors over the long term in the past.