One of the most common questions we have received recently has been: What is Bitcoin? The attached article (compliments of Dimensional Fund Advisors) goes into detail to answer that question, as well as the question of its investment merit. Here’s a brief overview.
Bitcoin is a “crypto” (or virtual/digital) currency. Like other currencies (i.e., the U.S. Dollar, the Japanese Yen, the Euro, etc.), Bitcoin is a means of exchanging goods and services between sellers and buyers. However, it is very different than the Dollar or Yen in that it operates purely in a digital format, and there is no sovereign nation, or central bank, backing it.
Additionally, the pool of people who have agreed to use Bitcoin is very small. It is estimated that the total value of all the Bitcoin in the world is just $41 billion – less than Bill Gates’ net worth and just 0.04% of the total amount of all the money in the world.
Because it is not tied to the economy, or backing, of any country, and due to its small size relative to other currencies, the price of a Bitcoin has been extremely volatile as the accompanying chart shows. In early January of 2017, one Bitcoin was valued at $965. It then went to over $19,000 in December of 2017, only to crash to around $6,000 in early February of this year. Recently it has traded around $10,000.
As for whether an investor should buy Bitcoin as an investment, we will let the accompanying chart and the attached article speak to that.
Bitcoin buyers, beware!