Is Bitcoin a Good Investment?

Posted on: February 28th, 2014 by jms 1 Comment

Bitcoin, a “cryptocurrency” that has started to gain wide spread acceptance in recent months, has many investors around the world believing it is the next big technology breakthrough since the dawn of the internet, and that may actually be the case. The technology itself is fascinating. Bitcoin has created a way to streamline online transactions with ease, privacy, and even cost savings to both consumers and merchants. It has revolutionized the way online transactions can be handled, which is likely why it has gained such widespread acceptance in such a short period of time. So the question remains, should you invest in Bitcoin, or any other form of cryptocurrency?


The answer to whether or not Bitcoin is a good investment is twofold in my opinion. There is no doubt that Bitcoin has a perceived value that will last for some time. It also has major venture capitalists, like Marc Andreson, funding companies like for millions of dollars, and online merchants like,, Etsy, OkCupid, and Zynga, just to name a few. The online super giant, eBay, is also considering accepting Bitcoin soon. This is all great news for those of us invested in this phenomenon, but the speculation is not all good. Bitcoin has many naysayers rejecting the idea, calling it a bubble, or this generation’s version of the “Tulip Mania”.


Comparing Bitcoin to the Tulip Mania seems a bit far-fetched, or maybe not, but the reluctance to see this new form of a payment system as anything more than a bubble is not unfounded. Bitcoin is intended to be an un-regulated “currency”. It has no central authority, and therefore, no real control over value beyond what the open market deems. Many see this as a good thing, but ultimately it is not. In order for any type of currency to gain trust it will need a central authority to regulate the way it is traded. Without that regulation, the trust will eventually die away. We already started to see this happen when Mt. Gox collapsed and Bitcoin owners lost Bitcoins valued in the hundreds of thousands of dollars overnight. Since there is no regulation, that money is as good as gone forever. The flip side of this is the response by governments to begin investigating ways to regulate Bitcoin. This has reestablished the dominance Bitcoin has in the marketplace, forcing governments to take notice and do something. Still, Bitcoin has a ways to go before its future can really be known.


So is Bitcoin a good investment? No, it’s a terrible investment with no guarantees whatsoever, and that should be our first response. However, as a modest investor, I personally added a small amount of Bitcoins to my own portfolio, and I plan on keeping them for the foreseeable future. There is, at the very least, perceived value that has the backing of major investors and merchants who want to see this thing succeed, many of which have a track record worth noting, so following in their footsteps might just be a good idea. So if you have some money put aside for a night out or you are willing to take a big chance on something that will most likely pay off big if it does succeed, then Bitcoin is a reasonable investment. My advice, for what it’s worth, is to invest only what you are willing to lose and leave it at that, but never invest without doing your own due diligence and research.

  • Thanks for your response, and what you’re sanyig is correct but doesn’t change the math. Your calculations, however, are exactly the same as mine with the exception that you introduce more complexity through depreciation and ming efficiency. You further assume that the miner will keep all coins to the end of the period and sell for a given exchange rate at that time. This introduces currency price speculation, which again just complicates things. I could counter-argue that a massive profit can be made by selling the card for coins at the low price and selling the coins at the high price. In the end, you’re just repeating the same argument, that total profit must the the result of mining revenue less depreciation and cost. In my calculations, mining doesn’t come into play because it is a minute factor and would balance out by a lower price with more coins being the same as a higher price with fewer coins. If you introduce mining, like you say, you need to introduce cost of electricity, depreciation, cost of operation (and for a $1000 rig, flipping burgers for minimum wage is far more profitable), and so on. I also don’t assume the end result denominted in a certain currency, which is exactly why I purchased’ one A at the beginning and held on to it. In the end, you hold exactly the same A as you had when you started. The point isn’t that one A is the best deal you could get, but to take trading and currency speculation out of the picture and show that when prices decline, you get far more coins than you do if you had held on to fiat or bought coins when the prices are higher.I go into far more details about in the book I’m writing (). You can download the preview chapter for free and you’ll see 8 scenarios with various permutations of mining, depreciation, selling low/high, and so on, but I’m afraid the results remain the same. Mining is most profitable when prices go down.