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 like stocks are backed by tangible assets and offer some downside protection, whereas cryptocurrency provides only a digital record on a blockchain with no underlying physical assets.
The value of cryptocurrency is primarily driven by perceived value and hype, rather than fundamental assets, making its price highly speculative and prone to extreme, sudden fluctuations.
Due to the absence of tangible assets and unpredictable price movements, the article concludes that engaging with cryptocurrency is a form of speculation, not a true investment, carrying significant risk without built-in protections.

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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.