Bitcoin and other cryptocurrencies have taken the investing world by storm. With the skyrocketing value of Bitcoin, it remains in the news on a regular basis, and eye-popping numbers drum up get rich quick fascinations of both young and old. However, is Bitcoin really the best form of investing? Is it something the average individual should consider, or does it present too many potential financial pitfalls for most to tackle on their own? Of course, without a centralized bank, government regulations or financial investment security on the cryptocurrency, there are inherent risks to keep in mind. Beyond all of that, here is what 10 top financial experts have to say about Bitcoin investing.
1. Jack Bogle
"Bitcoin has no underlying rate of return," Bogle continued. "You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support Bitcoin except the hope that you will sell it to someone for more than you paid for it."
For most kinds of investment, there is some kind of rate of return built into it. Bonds, for example, have a pre-set rate of return on it. Mutual funds and stocks often have a rate of return, although it does fluctuate based on the value of the company. Property, art and just about anything else tangible fall under this category as well (in one way or another). With most investments, there is at least a bottom. Outside of a business going bankrupt and the stocks turning into nothing more than worthless notations, there’s a bottom and investments can recover. Bitcoin, as Jack Bogle points out, doesn’t have a bottom, because Bitcoin isn’t anything more than a few ones and zeros on a computer somewhere. While this may simply be the future of financing (after all, the Internet is nothing more than ones and zeros), Jack does have a point. Bitcoin is only valuable when people are willing to pay more for it. The future of Bitcoin is unknown, but depending on how it goes, it may be able to compare it to baseball cards of the 90s. Valuable at the time, but overproduced and people stopped trading for them, so now it’s more or less worthless. In reality, only time will tell how Bitcoin continues to fare.
2. Howard Marks
"In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”
How continues a bit with what Jack has to say about Bitcoin and other cryptocurrencies. The currency has no underlying value and the only way it increases in value is if someone wants to pay more to have it. If people lose interest in buying the cryptocurrencies there isn’t any value to it. In this way, it is a pyramid algorithm for increasing in value (although not really a scheme as there is not one entity at the top profiting off of everyone else). There are plenty of pyramid-based monetary investments though. Social Security only works if the next generation pays more into it (has more children) than the previous generation, so pyramid methods for building value exist in several different forms. It’s just something to consider and to keep an eye on whenever considering a Bitcoin or other cryptocurrency investment.
3. Tony Robbins
"I think [Bitcoin] is very iffy. I don't have a clue. I look at that as it's like going to Vegas."
Many of the top investors don’t have experience working in the completely digital realm. Even if they trade online, they trade tangible items, purchase real estate and deal with businesses. Due to this, there are many high-end investors who simply don’t know how to react to this form of investment. It’s completely different from anything they have ever dealt with before. That is why Tony Robbins says he just doesn’t have a clue about what it is and how to work with it. He also labels it as more of a gamble investment. It comes with the potential for high rewards, but there is also a 100 percent risk as it doesn’t have a bottomed-out value to it.
4. Dan Roseman
“Here is a technology that allows anyone to send any amount of money to anyone else in the world at virtually no cost with nothing more than an Internet connection or smartphone. Bitcoin, like the Internet, is one of those innovations that can break down barriers; information barriers in the case of the Internet, and financial barriers with Bitcoin.”
Dan Roseman sees Bitcoin differently from many of the old school investors. He sees the value in Bitcoin as a whole. In a way, it’s similar to paper money. Paper money has no actual value. It is a representation of the exchange of money, but the paper itself is worthless. Paper money simply serves a purpose, as it replaced coins as an easier way to travel with currency. Bitcoin works in the same way. The currency itself is worthless. It’s not tangible and doesn’t have any physical value to it. However, it opens up the world of money transfers without all the exchange rates and other common problems standard currency runs into when making international trades. Dan sees it as an answer to a larger problem and that is why it is a worthwhile investment, or at the very least, a worthwhile solution to several monetary problems.
5. Mark Cuban
“It's OK to invest up to 10 percent of your savings in high-risk investments, including bitcoin and Ethereum. You've just "got to pretend you've already lost your money."
Mark Cuban has always been a bit of a high-risk investor. As a host of the TV show “Shark Tank,” the owner of the Dallas Mavericks and the head of several other companies, he understands the importance of taking risks. These often pay off the highest rate of return. However, he also understands the importance of remaining wise with investments. That’s why he recommends putting no more than 10 percent of savings into high-risk investments, and Bitcoin falls under this category. Because it is an extremely high-risk investment, the investor needs to look at it as if the money is gone. Most high-risk investments don’t pan out. That’s why it’s high-risk. However, those that do work often make up for previous failures and then some. So, Mark is completely fine with investing in Bitcoin, as long as it represents no more than 10 percent of a person’s entire savings.
6. John O'Donnell
“The US Dollar, established in 1913 with absolute control over Central Banking duties for the USA, has lost over 97% of its purchasing power parity. I call the Federal Reserve Notes system a dismal failure. I hope the Bitcoin model, which was created by the powerful innovative free market system, will earn serious traction and acceptance as a global alternative digital currency model and will compete with all fiat currency systems. The power of Bitcoin is that no central bank can print Bitcoins and dilute its purchasing power parity.”
Prior to the creation of the US Dollar, the United States relied on the gold standard. Pegging the dollar to the value of gold ensured the money really would have some sort of tangible value. However, since moving away from the gold standard the US has relied on the Federal Reserve. Despite the name, the Federal Reserve is not a federally owned or operated program. It is a private institution (just with a federal sounding name). John O’Donnel’s reference of the 97 percent purchasing power is in connection to inflation and how the Fed more or less controls everything connected with spending power within the US. He sees Bitcoin as a viable opportunity to split away from the fiat currency system. Despite potential negatives connected to a currency without any kind of monitoring and protection, Bitcoin does hold the possibility of correcting a number of monetary issues, including inflation, while taking advantage of a free market system. While John O'Donnell doesn’t directly say whether or not it’s the best investment opportunity, he does see it as a way to correct far more problems than it creates.
7. Merlin Rothfeld
“As a trader, it offers some incredible opportunities. Price fluctuations have been all over the map recently. In the last 2 months, Bitcoin has risen nearly 100%, prior to that it fell 55% in 2 months, in April it fell from 81% in 6 days! This volatility is incredible and, if you’re on the right side of the trade, can be very profitable.”
Merlin is dead on with regards to the volatility of Bitcoin. The more people want the currency the more they are willing to pay for it (and vice versa). The potential of making a very large return on investment is there with Bitcoin. However, as is the case with many other investment methods, it all comes down to timing (which can be, at least currently, difficult to forecast simply due to the volatility of the currency).
8. Warren Buffet
“Stay away from it, it’s a mirage basically. You can’t value Bitcoin because it’s not a value-producing asset.”
Warren Buffet is seen by many as one of the most well-respected investors in the United States. He also is very much a traditional investor. There’s a reason he lives in the same house for the last half-century, drives the same car and eats the same lunch (although for many successful people repetition is a trend). It shouldn’t surprise anyone he’s anti Bitcoin based on his own investment practices. He very much looks for value-producing assets, and as Bitcoin isn’t an actual asset, he suggests not investing in the cryptocurrency (or any other digital currency, for that matter).
9. Andreas Antonopoulos
“Anything that goes up 900 percent without the fundamentals supporting it is bound to reverse back to the mean at some point.”
Andreas makes a compelling argument. As Merlin suggested early about the volatility of Bitcoin, it’s very difficult to know when the currency will increase or decrease in value. The currency has jumped substantially in the last several years with a single Bitcoin valued at over $10,000. However, as the old adage goes, what goes up must come down. Many industries do fluctuate, and because there isn’t anything supporting the cryptocurrency, there’s always the chance of it coming back down to the center. Many industries experience a bubble burst. Real Estate a decade ago saw one of the biggest burst bubbles in history. There is always the chance Bitcoin can follow suit.
10. Lilian Chovin
“There is no protection for investors against scams, fraud, and hacks. It’s very much a frontier environment and this adds a high level of systemic risk on top of the usual risk associated with investing in highly speculative assets.”
It’s always important to look at the possible negatives of an investment. Lillian points out that the lack of a centralized bank backing Bitcoin can come with some consequences. If a person’s account is hacked and their Bitcoins stolen, there’s no way to retrieve the lost investment. It’s gone. There are protective barriers a person can utilize when holding onto Bitcoin, so whenever working with this kind of an investment, it is important to take every precaution possible to avoid potential pitfalls.
Some investors are interested in Bitcoin and cryptocurrencies, others, such as Jack Bogle, say to avoid it like the plague. It is a new form of investment, one of which flies in the face of entire careers of investment strategy and education, so there may also be a bit of uneasiness within the harsh talk from some of the top investors. However, these are individuals who have not only built careers, but also especially profitable investment careers, so it’s important to understand all sides of the coin before moving forward. Whatever an individual decides to do, as Bitcoin realistically doesn’t have a tangible, physical value to it, the best way to go about this kind of monetary investment is, how Tony Robbins puts it, “treat it like going to Vegas.” Only put in what someone can afford to lose. In the end, it may pay out with a far higher rate of return than any other investment, while on the other hand, it may be a bubble that bursts. By looking at it like a hand of poker or blackjack, it will make it easier to stomach, should the investment not turn out as one would want.
Which side of the pendulum do you favor? Will you be jumping on the Bitcoin train anytime soon?