Volatile bitcoin is not way to build wealth
The seesaw volatility of bitcoin poses a perfect opportunity. When you see a certain investment getting a lot of attention because it’s surging in value, it might make you feel that this is your chance for a shortcut to wealth.
That’s how you might feel about bitcoin. You don’t want to miss out, so you’re thinking, “Why not invest?”
Bitcoin is a “cryptocurrency” — actually lines of code — stored on a computer or held by a third party in a virtual wallet. It’s yet to become a widespread form of payment. But enthusiasts are speculating that it might one day.
Renewed interest in bitcoin recently pushed its price up to more than $13,000. And just as quickly, the price fell. At one point, bitcoin dropped by more than $1,800 in a matter of minutes.
Douglas Boneparth, a certified financial planner based in New York, has a frontline perspective on investing in bitcoin. In 2014, he teamed up with a childhood friend who has a doctorate in neurobiology. They split the cost for the purchase of a $6,000 computer, called a “miner,” which they needed to solve a complicated math problem that leads to the reward of bitcoin.
They were successful in getting bitcoins. But the problem that the computer solves becomes so complicated that, in six months, the computer couldn’t keep up and became a “glorified paperweight,” Boneparth said.
In the five years he has owned bitcoin, it’s been a wild ride.
“I watched it go as low as $230, and then as high as almost $20,000, and down to $3,300 in February of this year,” he said. “And now back up to $13,500.” (On Friday, it was at $11,070.)
“The same way I walk into a casino with money, that’s how I view bitcoin,” Boneparth said. “This is for fun and entertainment. I’m perfectly OK watching it go to zero.”
What Boneparth isn’t OK with is recommending bitcoin as an investment to his clients.
“No matter how exciting this is, it is still speculative,” Boneparth said. “It involves a massive amount of risk.
It is not something that could lose half its value. It is something that could lose all of its value. So as a certified financial planner, as a fiduciary, I could not even begin to recommend that my clients take a ‘hold’ or position in bitcoin. However, I’m more than happy to educate clients who have questions around it so they can make the best decisions for themselves.”
Speculation is akin to gambling. But, with patience, you can create wealth by watching your expenses, saving and using that money to invest regularly in a diversified portfolio.
If you love a thrill and have money you can afford to lose, you could try your luck at buying bitcoin. But for most investors, slow and steady investing — however boring it might be — is the best way to grow your wealth.
Readers can write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@ washpost.com.