One year ago, a single token of Bitcoin (BTC 3.46%) was valued at roughly $5,800. Today, it's trading at approximately $57,600 per coin -- up a staggering 877.5% across the stretch.
With the cryptocurrency putting up incredible gains and potentially powering a lasting economic shift, three Motley Fool contributors weigh in on Bitcoin's outlook. Read on to see whether they think the leading digital currency is a smart buy at this stage in the game.
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I love a great brand story, but...
Keith Noonan: I've never been particularly bullish on Bitcoin and will readily admit that I've been completely wrong about its performance over the last year. Does that mean that I'm ready to get on board with the hot cryptocurrency? Nope.
It's certainly possible that Bitcoin will continue to put up stellar returns, and everyone who has seen big gains thus far should be thrilled and proud of their results. The cryptocurrency has performed spectacularly and stands as one of the best-performing asset of all time. That said, I won't be purchasing Bitcoin any time soon because I struggle to understand the bull case for it.
Is Bitcoin a practical currency or a value-storing asset? Is it a speculative investment that could continue to see massive valuation gains? In my experience, the bulls' answers to these questions vary hugely depending on who you ask, when you ask, and how the question is framed. Bitcoin seems to be all things to all people, at least among the more hardcore adherents.
The Bitcoin phenomenon is super interesting, and perhaps it will continue to drive a real paradigm shift in finance. People really believe in it, and there's value in that. At least for a time.
With thousands of other cryptocurrencies already on the market and more getting in on the game each day, I just don't see the comparative value in Bitcoin's open source blockchain technology, particularly when other cryptocurrencies offer faster transaction times and lower processing fees.
Bitcoin is a brand. At this moment, it's an incredibly popular brand, but I'm not satisfied with explanations for why the cryptocurrency should or will become more valuable.
Potentially infinite competition
James Brumley: This is a question that merits a clear definition of the word "buy." If you're talking about taking advantage of short-term swings in the cryptocurrency prices, I'm not an advocate of speculative trading, but certainly it's possible. If you're instead talking about taking a long-term stake in bitcoin as you would a blue chip stock or a commodity, that's a hard "no" due to one glaring risk: There is no limit to the supply of them, wrecking the whole supply-versus-demand thing necessary to create price stability.
Yes, the number of bitcoins that can ever be mined is finite. Bitcoin isn't the only crypto out there, though. Dogecoin (DOGE 6.10%), Ethereum (ETH 2.35%), Litecoin (LTC 3.28%), and Cardano (ADA 7.20%) are others that came after Bitcoin, and more are sure to follow.
It matters.
See, money (fiat currency issued and managed by a central bank) works because its supply is controlled with economic stability in mind. You can exchange it for foreign currency, but currency exchange merely swaps money. It doesn't create it. Not so with cryptocurrency. Bitcoin's lofty value is predicated on it being the world's preferred crypto. If it becomes too expensive or too unpredictable, buyers and sellers can choose to move to a newer -- and cheaper -- cryptocurrency, and then another, and then another.
The bubble hasn't popped yet, but I fear a bunch of Bitcoin owners buying into a premise will end up suffering once the world collectively realizes the potential number of competing cryptocurrencies is infinite.
Governments won't tolerate it
David Butler: Obviously it would be a fallacy to say that you cannot make any money from cryptocurrencies. You can! I own a very, VERY small position in the Grayscale Bitcoin Trust (GBTC 1.29%), but this is more akin to gambling than investing. There is an inherently high level of risk involved, as pointed out above. In all, the biggest thing that I think investors and traders need to keep in mind is that the further this goes, the more world governments will feel compelled to act.
Anyone who truly believes that these internet-controlled cryptocurrencies like Bitcoin will ever become a comparable and useable alternative to the U.S. dollar is being a bit naive. Things like crypto may very well serve as an artificially created hedge against inflation, and a relatively useless digital commodity, and it does seem that some tech firms will try to let it be used for transactions. But at the end of the day, no government is going to allow their currency to play second fiddle to something as completely speculative as Bitcoin. If things get out of hand, you'll see government regulation. If that happens, there's the potential to watch something like Bitcoin's value in terms of U.S. dollars collapse.
If businesses start allowing cryptocurrencies to be used to carry out transactions, I think that will be the catalyst that finally causes government action. The ability to convert money into crypto, and then carry out transactions, creates a whole host of national security issues. It also creates a potential avenue for moving cash out of the country, by converting it into something that isn't a trackable government currency.
Once you start seeing that stuff, and I think we will in the near future, cryptocurrencies are going to start taking some serious scrutiny from government.
