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Bitcoin?By
Monday, January 27, 2014
$10,000 "invested" in Bitcoins a year ago would be worth roughly half-a-million dollars today...
This "digital currency" is up around 5,000% in the past year... and that includes a (roughly) 30% fall over the last few months.
With gains like that, Bitcoin is the "in" thing to talk about at cocktail parties today.
It's fun to talk about.
Like most people, I really want some sort of decent alternative to the U.S. dollar or other government currency. And Bitcoin is an interesting case study in this.
The thing is, when I size up Bitcoin with my lifelong metrics of what matters in currencies and what matters in investing, the reality is, it doesn't hold up. Here's why...
Let's briefly take a look at Bitcoin as 1) a currency, and 2) as an investment...
A sound currency needs two very basic things... It must be readily accepted by others and relatively stable in value.
While it's becoming easier to spend your Bitcoins, it's still much more difficult to complete a transaction with Bitcoins than it is with dollars, for example. At this point, Bitcoin is more a novelty than a currency.
Secondly, Bitcoin is anything but stable in price. It has risen or fallen by 5%-plus 116 times in the last year... The U.S. dollar hasn't done that once.
Longtime readers know I look for three things in an investment... I want to buy what's 1) cheap, 2) hated, and 3) in an uptrend.
Bitcoin fails on all three metrics...
While it's hard to determine a "fair" price for a Bitcoin, I do think it's hard to call it "cheap" after a 5,000% gain in one year.
It's not "hated," either... As I said, it is the talk of cocktail parties. For the best returns, you want to buy what nobody is talking about, and you want to sell when everyone is talking. Now, everyone is talking about Bitcoin.
And even my "uptrend" criteria isn't met anymore with Bitcoin...
It peaked in December and is down by around $300 since then.
Take a look...
 As you can see, Bitcoin has been incredibly volatile over the past few months. And it has been going DOWN in price. That's not to say we can't see higher prices... But the momentum that propelled Bitcoin above $1,100 is gone.
So Bitcoin isn't cheap... it isn't hated... and it isn't in a strong uptrend. Also importantly, it doesn't fit the bill of a true currency – not yet, and maybe never.
Based on what I know about currencies, and what I know about investing, I will not be a buyer of Bitcoin...
It doesn't meet the basic criteria for a currency or for an investment.
There are so many better things you can do with your money right now.
For me, I will be a spectator in Bitcoin, not a participant. In this case, I would rather watch this circus act for the entertainment value than be a part of it.
You can do what you think is right, of course. But if you're a buyer of Bitcoin, keep today's words in mind...
Good investing,
Steve
Further Reading:
One place Steve recommends putting your money right now is China's currency, the renminbi. "According to one of the best investors of all time... the renminbi could overtake the U.S. dollar within 20 years as the world's most important currency," Steve writes. And it could go up in value by 300%, 400%, or 500%. Find how to make the trade here and here.
Housing is another one of Steve's favorite places to invest today... And "if you haven't bought into real estate yet," he says, "believe me, you haven't missed it... House prices could go BEYOND fair value in this housing bull market." Learn more here.
Market NotesNEW HIGHS OF NOTE LAST WEEK
Google (GOOG)... search engine
Facebook (FB)... social media
Blackstone Group (BX)... private equity
Kohlberg Kravis Roberts (KKR)... private equity
E*Trade (ETFC)... brokerage firm
Charles Schwab (SCHW)... brokerage firm
Wells Fargo (WFC)... bank
Visa (V)... credit cards
Domino's Pizza (DPZ)... fast food
Burger King Worldwide (BKW)... fast food
Amazon (AMZN)... online retailer
DirecTV (DTV)... satellite television
Netflix (NFLX)... movie rentals
Sherwin-Williams (SHW)... paint
Wyndham Worldwide (WYN)... hotels
Wynn Resorts (WYNN)... casinos
Las Vegas Sands (LVS)... casinos
Delta Air Lines (DAL)... airlines
Boeing (BA)... airplanes
Union Pacific (UNP)... railroads
Texas Instruments (TXN)... semiconductors
Alcoa (AA)... aluminum miner
Chicago Bridge & Iron (CBI)... natural gas infrastructure
Lockheed Martin (LMT)... "offense" contractor
Northrop Grumman (NOC)... "offense" contractor
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