Will Bitcoin perform like the stock market over the long term? Who knows…
We are still in the early days of digital currencies, which are based on an encryption technology known as blockchain.
According to Seth Godin, who wrote a post today on the importance of action in creating your future, if you had invested $1,000 in Bitcoin, the most well known digital currency, back in 2008 you might have over $40,000,000 today.
Seth knew more about digital currencies than almost anyone way back in 1995, when he wrote “Presenting Digital Cash“, one of the first books on digital currencies… But despite his understanding of digital currencies, he didn’t act on his knowledge.
Is Bitcoin a good investment today? Who knows. There are several blockchain based currencies that you can trade on Coinbase, a platform for transacting digital currencies. Other digital currencies tradeable on Coinbase include Litecoin and Ethereum.
I invested in a tiny amount of Bitcoin today, using Coinbase, inspired by Seth’s post on taking action.
You can invest in Bitcoin, Ethereum and Litecoin using Coinbase, which accepts bank accounts and credit cards. I would never recommend using a credit card to buy anything unless you plan on paying off your bills in full every month.
Buying Bitcoin with a credit card on Coinbase is very convenient, but it costs 3.99% per transaction, in fees. This is extremely high when you consider the purchase as an investment… A broker would never get away with charging you 3.99%… This means that your investment is automatically worth 3.99% less than you paid for it on day one. Bitcoin doesn’t pay a dividend, so you’ll be waiting for it to (hopefully) appreciate before you can realize any gains by selling it.
If you have a credit card such as the Fidelity Visa card that provides 2% cash back into your Fidelity account, you could effectively reduce the up front cost of investing in Bitcoin on Coinbase to 1.99% while investing in the 2% cash back in dividend paying equities using Fidelity, which would further compress the up front cost incrementally.
Or by using other cards that accrue points, or cash back, and allow you to pay your charges with points, you may be able to apply the points you accrue in your credit card account to invest in digital currencies, such as Bitcoin, for free.
Looking at historical Bitcoin and Nasdaq and Dow Jones Index stock charts doesn’t tell you much, other than that prices tend to go up over time.
Something terrible will inevitably happen with Bitcoin to cause it to crater before it hopefully recovers. You could hedge your bets on investing in Bitcoin by using dollar cost averaging, which spreads purchases over time as the price of digital currencies rises and falls.
As long as Bitcoins are scarce and verifiable, and as long as there are many powerful people who have a lot to gain by the future success of Bitcoin, you may determine that investing in Bitcoin is a risk you’re willing to bear over the long term.