Is bitcoin a good investment?

Thoughts on bitcoin

INVESTING

Lillaney, RTI For Money

5/20/20232 min read

gold-colored Bitcoin
gold-colored Bitcoin

What is bitcoin?


According to bitcoin.com “Bitcoin is the 1st & most widely recognized cryptocurrency. It enables peer-to-peer exchange of value in the digital realm through the use of a decentralised protocol, cryptography, and a mechanism to achieve global consensus on the state of a periodically updated public transaction ledger called a 'blockchain.'”


What is a cryptocurrency?


According to investopedia.com “A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralised networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.”


What is cryptography?


According to geeksforgeek.org “Cryptography is the technique of securing information and communications through use of codes so that only those persons for whom the information is intended can understand it and process it. Thus preventing unauthorised access to information. The prefix “crypt” means “hidden” and suffix “graphy” means “writing”. In Cryptography the techniques which are used to protect information are obtained from mathematical concepts and a set of rule based calculations known as algorithms to convert messages in ways that make it hard to decode it. These algorithms are used for cryptographic key generation, digital signing, verification to protect data privacy, web browsing on the internet and to protect confidential transactions such as credit card and debit card transactions.”


What is a blockchain?


According to Wikipedia “A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. The timestamp proves that the transaction data existed when the block was created. Since each block contains information about the previous block, they effectively form a chain , with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered without altering all subsequent blocks.


What is an investment?


I think Benjamin Graham defined this best in his book “The Intelligent Investor” as follows:


“An investment is any operation which upon thorough analysis promises safety of capital and an adequate return.”





Is bitcoin a good investment?


According to the above definition of investment we cannot conclude that bitcoin can promise safety of capital although it might provide an adequate return.


The reason that I say that it does not promise safety of capital is that there is no regulator guaranteeing it like other currencies.


As far as returns are concerned they have been very volatile and mixed depending on when you invested.


What are the other cryptocurrencies?


Other than bitcoin there are other cryptocurrencies like Ethereum, XRP, Dogecoin, Litecoin, etc.


What are the benefits?


Easier to transfer funds between parties and be used as a currency.

Can be used as an asset class to generate returns.


What are the risks?


No to low regulation.

Volatility in values.


What is the market share with respect to other currencies and gold?


Cryptocurrency markets were valued at 1-2 trillion dollars.


Gold markets were valued at 13 trillion dollars.


Currency markets were valued at 2.4 quadrillion which is 2400 trillion dollars!