Spent some time this morning rethinking my position on crypto and specifically, bitcoin. This well-written primer by the NYTimes was helpful.

I’ve long held that bitcoin is a Ponzi scheme. First “investors” win big at the expense of later investors, and the last guys in lose it all. That’s still a possible final outcome for all the cryptocurrencies. But bitcoin has been around for quite a while – since 2009-ish – and over that time the value of a single coin has grown from $0 to about $97K. ALL that growth is via speculation – the coin has nothing to back it up in reality. Coin purchasers hope that demand continues to outpace supply and that their eventual sell price will exceed their buy price. With a ton of volatility along the way, so far that has been the case.

I feel bad that I strongly advised a few friends not to invest in bitcoin in 2017. I told them that they had to be ready to lose it all, as BTC (bitcoin) (a) is 100% speculative with nothing backing its value, and (b) is extremely volatile, swinging wildly up and down with no apparent cause. While I stand by that advice, if my friends or I had invested $1000 in BTC in 2017, that would now be worth about $25K – a seriously great ROI. Here’s a 10-year graph of the coin’s market value.

Illustrating the crazy exponential growth of BTC, if that same $1000 had purchased BTC in 2009 (when it all began), it would now be worth about $100 billion! Quite a few folks bought (or created, though that’s a whole other essay) BTC in the 2009-2015 era, and have done quite well as a result – assuming they cashed out at the right times. My KY Turo partner has a BTC mining (creating) operation and I think he’s made out well. But it involved him buying into a hydro-power generation plant to drive the BTC mining computers. Not a gig for everyone.

So is it a good investment right now? The answer is…maybe. We’ll never see the exponential returns that the first investors saw, where a dollar multiplies into millions. But could we see BTC at $200K. Or at $1M? Yes, potentially. So the original advice remains – yes, you could make some real money via BTC, doubling or even 10x-ing your investment. If you’re willing to leave it alone until you reach a cash-out level that you like, and assuming nothing crashes between now and then. There’s minimal regulation, no protections other than the cryptological blockchain. But there is the “safety” of the now-millions of other BTC investors making the market. That’s what’s holding BTC steady right now – millions of investors/believers.

Another way to make money on BTC is probably the most technically sophisticated – high frequency trading of the coin’s puts and takes, making money on its volatility. IF you can predict those ups and downs over short periods of time, you can make a lot of money. But that’s well beyond the capability of most investors, including me.

There was a low-risk path to making significant money from BTC, and that was becoming a miner early. All you needed was computer expertise, and I had that. I regret not getting involved in early BTC mining systems – that would have been fun. But other than that, it’s just too speculative for me. I like dividend-returning stocks, real estate, fixed-rate return bonds, etc. I *might* spend a few thousand on BTC this year just to experiment, but I’ll do so knowing that I may lose the money. It’s a lot like going to Vegas and betting all your cash on black.