Bitcoin: Bubble mania or legit investing opportunity?

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Cryptocurrency is all the buzz right now thanks the massive run-up in value that bitcoin has seen over the past few weeks.

In an unprecedented move, bitcoin recently took a giant leap in value to trade north of $3,000 for the first time in history. Digital currency tracker CoinDesk reports the value of single bitcoin hit a record high of $3,012.05 on June 11.

That, of course, has a lot of people wondering if now is the time to invest in bitcoin…

Read more: 3 rules for buying gold

Two sides to the same bitcoin

Back at the beginning of May, bitcoin sat at $1,400. Three weeks later, it took a nearly 300% leap in value to trade as high as $2,000.

Now just days after that, bitcoin has added another thousand to its value!

The thing you’ve got to understand about bitcoin is that it was worth less than $1 back in late 2010 and early 2011! As recently as Dec. 31, 2016, it was only trading at $968.

So people naturally wonder if they’ve missed their golden opportunity to invest or if they should throw caution to the wind and buy at what seem like very inflated valuations.

Yet for all those who loudly champion bitcoin, the digital currency also has prominent detractors. Billionaire entrepreneur Mark Cuban recently took to Twitter to offer his thoughts:

For those not in the know, bitcoin is an alternative digital currency not tied to any particular nation. It is an open-source peer-to-peer payment method which people use mostly for online transactions. Some businesses accept bitcoins as payment in lieu of U.S. dollars or traditional credit cards.

This idea is not as completely out there as it may sound, according to money expert Clark Howard.

“The most successful non-governmental form of money has been in Africa where people use cell phone minutes as currency,” Clark says. “When you go to a store to buy something, you text the store owner a certain number of minutes to make a purchase, rather than using the volatile government monies.”

(Editor’s note: For more on Africa’s longtime use of cell phone minutes as currency, see this piece from 60 Minutes.)

Stick to the 5% rule

So what about you — should you invest in bitcoin?

Clark’s longtime rule of thumb for investing in any commodity — be it gold, silver or other precious metal — holds true in this case too.

The consumer champ is not opposed to you having a small percent of your investment money in bitcoin, maybe on the order of 5% of your overall portfolio. But never put in more money than you would lose sleep over if you lost it altogether.

So to take everything you’ve got and dump it into bitcoin right now on the hopes that it goes even higher than $3,000? That’s called being a speculator — and it’s something Clark never encourages.

Read more: Worried about the economy? Here are 11 recession-proof jobs

Bitcoin as an alternative payment method

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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