Should you invest in crypto (and get rich)?
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To answer:
\\nQuestion #1: Bitcoin or Cryptos?
\\nThe first question you should ask yourself is whether you want to invest in bitcoin directly or cryptos as an asset class? Did you know that there are over 2,000 cryptocurrencies besides bitcoin?
\\nQuestion #2: What About Inflation?
\\nWhen you invest in bitcoin or any other currency or commodity \\u2013 including gold, oil or pork bellies \\u2013 you are investing on the prospects of price appreciation alone. More specifically, you are investing on the prospects of the price of bitcoin rising relative to the U.S. dollar. And while the recent price surge makes inflation look silly, you should evaluate currencies and commodities with respect to inflation.
\\nQuestion #3: Can you Tolerate Extreme Volatility?
\\nThe price appreciation of bitcoin in 2020 underscores the extreme ups and downs. Consider this:
\\nBitcoin went from $7,300 to $29,000 in 2020. But it also dipped to about $5,000 in mid-March during the beginning of the pandemic.
\\nBitcoin rocketed to a new all-time high of almost $42,000 on January 8th. But then it plunged to about $31,000 on January 11th.
\\nQuestion #4: Do You Really Understand It?
\\nThis one requires you to be completely honest. Do you understand how cryptos work or even why bitcoin\\u2019s price has skyrocketed? Do you understand bitcoin mining and how it works? Can you explain it beyond the headlines or the 5-second stories?
\\nIf you don\\u2019t really understand an investment, should you make it? And if you can\\u2019t explain an investment to a 5th grader, should it be one of your investments?
\\nCould bitcoin or cryptos make sense as an investment for you? Sure, it could. But you should strongly consider limiting your investment to an amount you can afford to lose and prepare yourself for a long and choppy ride.
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