High Finances: Bitcoin is Not an Investment

You could be flying high on cryptocurrency, but what happens when it trends downward?

Jason Depew

Thursday, November 25, 2021 at 03:54 AM ET

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What exactly do you get when you buy cryptocurrency? [Image courtesy of Imgur]

Key Takeaways:

Traditional investments, such as stocks, represent ownership in a company, are backed by tangible assets, and offer some inherent protection or recovery options in adverse scenarios.
Cryptocurrency, unlike traditional investments, is not backed by any real-world assets; its value is solely based on perceived demand and market hype.
The article concludes that engaging with cryptocurrency is "speculation" rather than "investment," as it lacks predictable value, offers no downside protection, and is prone to sudden, drastic losses.

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If the headline above is true, why did I spend so long gushing about cryptocurrency last week? To understand the answer, we have to look at what an investment is in the first place.

What is an Investment?

When you buy a share of stock, you’re buying part of that company. If you buy a share of Textron (NYSE: TXT) you become a part-owner in all of their belongings. As Textron sells more aircraft, the value of the company increases. This means your share of stock is worth more. They may also pay you dividends, hard cash from their quarterly or annual profits. If you decide to sell your share of stock, you’ll hopefully be able to get more for it than you paid.