The #1 question I get as a cryptocurrency enthusiast is – “Is Bitcoin a Good Investment?”. It’s funny though, because most people don’t really consider what a “true” investment is or why they invest. In fact, no one really “wants” to “invest” money unless they are a true entrepreneur. We would rather save their money in a safe place where it holds its value…but we don’t, because we can’t. Why?
This brings us to the reason Bitcoin was created by Satoshi Nakamoto back in 2008 (the year of the last financial crisis and massive bailouts of those “too Big to fail” paid for by us…the tax payer), which also answers the question “is bitcoin a good investment”? So before we understand whether or not Bitcoin is a good investment, we must first understand why do we even need an investment at all to save for college, a house, a vacation, a vacation home, or retirement.
I don’t know about you but I come from humble beginnings. In fact, I am the first person in my family to graduate from a university and achieve “middle class” status. But I realized in my late 20’s and 30’s that the “American culture” wanted me to buy a brand new car, buy a boat, take out a personal loan for our family vacation, etc., and we did! We wasted SO MUCH of our late 20’s and 30’s trying to keep up with the Joneses and simply accepting the Rat Race. But eventually I began realizing that I was getting NO WHERE.
My corporate job was a multiple six-figure position, yet somehow we were still living paycheck to paycheck! How?
And then it hit us…it’s exactly what I learned from Robert Kiyoasaki (but never listened) years prior. In the world of finance, there are assets and liabilities. We were spending all of our money on liabilities, not assets!
I believe this is true for most people still today!
So the real question is, is money…the U.S. dollar an Asset or Liability?
I’m sorry to take this slow, but to understand this…we must first understand what money is.
Money makes the world go around. People count on the ability to exchange money to purchase products and services. Before the development of money (a medium of exchange) – people would barter to obtain the goods and services they needed. This was basically two individuals, each possessing goods that could benefit the other, and they would enter into an agreement to trade.
The invention of money was to simplify that process so we could trade even if I didn’t want what you had. I could take the money, and then buy what I want.
Historically, money had been considered to be sound if it maintained the following 5 properties (and they don’t teach this in school)
- Fungible
- Durable
- Portable
- Recognizable
- Stable
But was about being a Store of Value?
Obviously, you want a “money” that can’t be counterfeited and is easy to move…but technology has solved all of those problems. But being a store of value…the dollar isn’t so good at. Inflation anyone?
See, the United States Dollar used to be backed by gold. Do you recall the Gold standard? Before that, Gold was basically the worlds money. There were a few iterations before that but Gold was more or less the last “real money” we had until we began with “currency”. Notice they use the word currency and not money.
Unfortunately, although the dollar is the worlds reserve currency, it is no longer backed by anything except our military, but that’s not so good for regular folks like you and I.
So what’s the Big Deal?
You see, if your money isn’t “backed” by any strong asset, it’s only value is the fact that all people must accept it as form of payment, but the longer you hold on to it the less it is worth. Therefore, you cannot “store” your cash in cash, you have no choice but to invest it if you want to maintain it’s purchasing power over time.
Why? Because the Central Banks print more and more money every year. If the supply of money is increasing then you have more dollars chasing the same goods leading to higher prices. In real world terms, this means the price of houses, cars, furniture, food, and everything else you buy is going up.
Awesome Isn’t It
Not quite. In fact, this is why the richer are getting richer and everyone else is falling behind. But what if it takes me a long time to read reviews and convince my wife I need a motorcycle? By the time I’m ready to buy, the motorcycle has gone up in price.
The Last Question Money Doesn’t Answer?
Have you ever wondered why Milk from a Cow costs more today than it did 20 years ago? What about gasoline or Orange Juice? Things cost more – right? This is why people “need” investments.
See, if we had sound money, the average person could simply save money and buy in the future at the same price things are today…but in our world, things go up in price. This “inflation” is what creates the entire purpose of investments for most people. It’s because the Banks are devaluing our money. A dollar today is worth less tomorrow.
How the Banks Destroy the value of money
The purpose of investing…
Is Bitcoin a Good investment? A long term view