I get asked a lot by family and friends if they should invest in Bitcoin or other cryptocurrencies. My advice is always ‘no’ and usually providing the anecdote of how I lost about $2,500 (initial buy in, valued at $5200 at the time of loss) when Mt.Gox went under is enough to deter others. If it isn’t, I then tell them that even Warren Buffet limits his investments to businesses he understands and I ask them if they understand what a cryptocurrency, proof of stake, proof of work, hot storage, cold storage or a blockchain is. And if that isn’t enough I’ll just ask them if they heard how one guy tinkering with contracts accidentally nuked $150 million in Ethereum.
That said, I’m fairly moot on Bitcoin and others. I consider it more gambling than investing because the number crunchers are starting to show that prices are being manipulated fairly heavily for pump-and-dump type operations. On top of that they are ‘securities’ that are unregulated. For money launderers, drug dealers, price manipulaters, etc, that’s fine. But for people who want to make investments that they can reasonably trust it is not. Sometimes the person says they are okay with gambling and they want to ride the highs and lows of cryptocurrencies “for fun”. When that happens I tend to recommend they stick to Bitcoin or Ethereum, purchased through one of the larger sites, and to avoid initial coin offerings without checking with me. Crypto forums are really starting to get flooded with people pitching ICOs with unfathomable returns listed out in fake white papers with false or loose celebrity endorsements in order to sell people on the idea of getting rich quick and taking their money.
I try not to get caught up in the argument of what something, like cryptocurrency, is worth. I’m a capitalist and believe an item is worth what someone is willing to pay for it. In fact, I don’t particularly believe in the idea of “price gouging,” so much as “that’s just what the new price is due to demand.” How many people thought Yahoo! was worthless before selling off major assets to Verizon? How many people actually think Theranos is worth what they get valued at when everything points at their main selling point being vaporware? Is Uber’s valuation legitimate considering their burn rate? Doesn’t matter. All that matters is what someone is willing to pay for it.