Is Bitcoin for Real? Or Just an Unreliable Short-Term Play?

Bitcoin is like a banana: you could buy it as it starts to ripen, and it may taste great for a few days, but then it quickly develops bruises, loses its taste, and eventually turns black.

cell phone with image of digital wallet

Bitcoin is undeniably volatile—its peaks tend to be followed by sharp declines. So that begs the question: is bitcoin a good long-term investment? Or is it only useful as a short-term momentum play in brief, exhilarating bursts?

Bitcoin vs. the Stock Market
There have been three big rallies in bitcoin in the last four years: in 2017, when it raced from about $1,000 per bitcoin to better than $19,000 by year end. In the first half of 2019, when it zoomed from just under $4,000 at the start of the year to over $12,000 by the end of June. And then in the last few months.

All other times, bitcoin has been either stagnant or plummeting.

Consider: after the $19,000-plus top in December 2017, when all your friends who don’t normally talk about investing were asking you about bitcoin, the cryptocurrency completely crashed, losing 83% of its value in the ensuing year.

Following the rally in the first half of 2019, bitcoin prices again collapsed, dipping back below $5,000 by March of this year after nine straight months of losses. Then, like stocks in the wake of the February-March market crash, bitcoin rallied again, but really took off in the last three months of 2020, more than doubling its December 2017 by year’s end.

If you had the foresight to invest in bitcoin four years ago, you’d have made a ton of money today. But most people weren’t buying bitcoin in early 2017. Chances are, if you did buy bitcoin, you first did so in late 2017, when the noise surrounding it was at a fever pitch. If you did that, you likely either lost money, or (hopefully) sold off and booked a modest profit when cryptocurrencies were in freefall in early 2018.

The same thing would have happened if you bought on the rally in mid-2019. And if bitcoin was your first investment to start 2021, well, you’ve already lost money.

Is Bitcoin a Good Long-Term Investment?
Perhaps this time the steep drop-off is little more than a needed pullback after nearly quadrupling in price over the prior three months. The problem is there’s no way of knowing for sure. Bitcoin has so little history as an asset, and what little history it does have suggests that when the price goes south, it reaaallly goes south.

As the last four years have shown, bitcoin can be a very good long-term investment. But you have to get it at just the right time (i.e. not when everyone is talking about it), and you have to be willing to stomach some major ups and downs along the way.

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