With the New Year underway, I thought it would be a good time to give an update on our (very) small Bitcoin investment that I have written about several times. Reading the headlines, you would assume that the bottom has fallen out of the cryptocurrency market. Like many things, that is a matter of perspective.
Each morning, I get a notification on my iPhone signaling the current Bitcoin price. This morning’s quote was $4,048 per ‘digital coin’. We don’t own a full coin ourselves, we bought just a small fraction of one in June of 2017 when my son convinced me to jump into the market he joined in January of that year.
It turns out that the current price is almost exactly the same as what I paid – $4,000/ coin. My investment is up just 1% over a year and a half. My vision was that cryptocurrencies could be an effective ‘store of value’ over government p-backed currency, which is managed to produce inflation, and it has delivered that. The Consumer Price Index shows US currency devalued about 3.5% over the same period.
I’m not declaring victory in any sense, though. To give you a sense of how completely improbable my position of being roughly ‘flat’ versus when I invested is, consider my son who bought 6 months earlier than I did. He was the crypto-pioneer of the family and bought his Bitcoin when the price was just $800/coin. His investment would be worth a whopping 384% today. Unlucky in almost an equal amount are folks that bought 6 months after me and paid $20,000/coin. They are down a devastating -81%.
Clearly, timing was everything, and I happened to jump in right in the middle.
For my part, I still see potential in cryptocurrencies over the long term, especially as rising interest rates are likely to push inflation up. I don’t see them dissolving entirely, although I would continue to be incredibly cautious by limiting your investment to just a tiny sliver of your retirement account as there are thousands of individual cryptos and no one can tell which one (if any) will sustain themselves.
It’s perhaps no different that betting on one of the thousands of automobile companies that were active in the early 1900s. All but a few investors ever survived the shakeout in that market, and few will likely survive this shakeout. In the meanwhile, ‘happy motoring’ on the cryptocurrency highway!
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