There are a lot of hot investments right now, including electric vehicles, renewable energy, and anything having to do with the cloud. One investment arguably dwarfs them all in popularity: bitcoin.
Bitcoin has nearly tripled over the trailing three months, has more than quadrupled over the trailing year, and is up close to 7,200% over the past five years. Unless you were lucky enough to latch onto a low-volume, undiscovered small-cap company in early 2016, you probably don’t have a stock that’s outperformed bitcoin.
The world’s largest cryptocurrency is a dangerous investment
But in spite of its gains, I also view bitcoin as an inherently dangerous investment. That’s because it suffers from the fatal flaw of scarcity vs. utility.
Bullish bitcoin backers view the 21 million token cap on bitcoin as the driving force behind this rally. Having a limited number of mineable tokens means bitcoin will avoid the deflationary aspect that plagues fiat currencies, like the U.S. dollar. The belief is that as the U.S. (and global) money supply grows, the value of each bitcoin will soar.
Optimists also tout the utility of bitcoin. Divisible down to eight decimal places, getting in on the bitcoin craze can be done with just a few dollars. Further, more businesses than ever accept bitcoin as a form of payment.