Should You Invest in Bitcoin? Here's What Peter Schiff Thinks
- Well known financial commentator Peter Schiff is not a big fan of Bitcoin.
- Schiff has called it a digital pyramid scheme, arguing that Bitcoin only has value if someone else is willing to buy it.
- Buying Bitcoin depends on your financial situation and research into how you believe it may perform in the long term.
Spoiler alert: Peter Schiff is not a big Bitcoin fan.
Peter Schiff is a long-term Bitcoin (BTC) skeptic who doesn't look likely to change his mind. In short, Schiff believes the cryptocurrency industry is one big bubble that could burst at any time. He thinks Bitcoin has no intrinsic value and can't be used for anything.
Schiff is the Chief Economist & Global Strategist of Euro Pacific Capital. The well known stock broker is famous for predicting the 2008 financial crisis. He's built a reputation as a financial commentator and radio personality, and has authored several books about money matters.
Let's take a look at Schiff's two biggest objections to Bitcoin.
1. It is a ‘digital pyramid scheme’
In February, Schiff tweeted: "#Bitcoin is just a digital pyramid scheme." It isn't the first time he's expressed this sentiment, and it probably won't be the last. He called it, "A blockchain letter that will soon run out of chain, leaving millions of delusional speculators HODLing the bag. It can only go on until the supply of greater fools runs out, or the fools that already own it run out of money to buy more!"
Schiff's reference here to the "greater fool" alludes to the greater fool theory of investing -- the idea that prices only go up because there's someone else willing to pay more for that asset. The thinking is that Bitcoin doesn't have any inherent value, the only thing you can do with it is to sell it to someone else. If there's ever a point where nobody wants to buy Bitcoin, the whole industry will collapse.
2. It doesn't generate income -- in fact, it doesn't do anything
Schiff's other main concern about Bitcoin is that it lacks utility. He told RealVision last year, "It's not an investment asset like real estate, doesn't pay rent, it's not a stock, it doesn't pay dividends, it's not a bond, it doesn't pay interest. It's not even a commodity, because you can't use it for anything."
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Schiff has argued on previous occasions that Bitcoin doesn't do anything. Where gold can be used to make jewelry and oil can generate power, he says Bitcoin serves no purpose. Bitcoin fans would disagree. They argue Bitcoin can transform the way we use money. To them, Bitcoin is a commodity with several real world uses. For example, it can act as a store of value, like a type of digital gold. It can also offer a way to move money easily and cheaply across borders and settle transactions much faster than the traditional banking system.
On a similar note, what gives the U.S. dollar value is not that the paper it's printed on can be used for something. The U.S. dollar is valuable because it is used and people believe it to be valuable. Bitcoin is similar, though that idea of value is more complicated because it is decentralized and does not have the backing of a central bank or government. But Bitcoin enthusiasts argue that certain features, such as trust, scarcity, and security give it value.
Should you invest in Bitcoin?
The evolution of the cryptocurrency industry is an extraordinary phenomenon, and there are many opposing views on what it means and where it might end. In just a few years, crypto has grown to a $2 trillion dollar market -- one that encompasses everything from grandaddy Bitcoin to meme tokens like Dogecoin (DOGE). But it is still relatively new and unregulated, and crypto prices could still fall to $0.
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It is important to listen to both the Bitcoin critics and the evangelists. The skeptics will warn you of the risks, while fans can highlight the potential benefits. In the end, you'll need to do your own research and make your own decisions about where you think Bitcoin or other cryptocurrencies will be in five to 10 years time. A long-term perspective is crucial when evaluating these assets.
A lot depends on your own financial situation too. It is a high-risk asset class, so don't invest money you can't afford to lose. If you're not on top of other financial goals, such as paying down debt or putting together an emergency fund, now's probably not the time to buy Bitcoin. Even if you believe Bitcoin might succeed in the long term, those other financial goals take priority.
Ultimately, as we saw last year, Bitcoin has the potential to generate huge returns. But it's also extremely volatile and the trade off for that high earning potential is that investors can also lose a lot of money. If you decide to buy Bitcoin, take steps to mitigate the risks so a crypto crash doesn't impact your financial well being.
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Emma Newbery owns Bitcoin. The Motley Fool owns shares of and recommends Bitcoin.
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