The rapid rise we’ve seen in Bitcoin prices of late, and all cryptocurrencies in general, has stoked investor interest back to levels we haven’t seen in a couple years. This has been a hyper-growth asset class in the past, and right now, it looks like once again the sky is the limit with respect to how much potential growth could be on the horizon with cryptocurrencies.
I have no idea how to value these assets, so I’ve been on the sidelines since the onset of cryptocurrency mania. I’ve missed out on all the gains this asset class has provided, but it simply doesn’t fall into my “realm of competency,” a Warren Buffett mantra I try to follow in my investing philosophy. Assets that are difficult to value can be highly volatile, and we’ve certainly seen that to be true with Bitcoin and its cryptocurrency peers. That said, the extent to which this is an asset bubble or a paradigm-shifting new technology is up for debate.
I do think there are some incredible short-term headwinds for cryptocurrencies right now. The amount of stimulus that has been printed has forced investors to think about alternative assets that are negatively correlated to the U.S. dollar. This trade has typically gone to gold in the past, though we’ve seen capital flow more easily into Bitcoin than gold of late, and this might persist.
That said, I’m more of a gold bull right now than a cryptocurrency bandwagon trader; I think a U.S.-dollar deflationary trade can take many forms, but speculating and investing are two different things. In this regard, I’d caution investors to be very careful with investing in Bitcoin, particularly at these levels.
Invest wisely, my friends.
