A college student recently asked me
whether students should invest in bitcoin. I said I don’t give investment
advice, but I cautioned her: Be careful what you mean by invest! You see, crypto
currencies – or coins – aren’t like stocks that give you rights to a company. With
most coins, all you own is the right to transfer it to someone else.
She said, “That sounds like traditional currencies. So why does bitcoin fluctuate
in value so much?” With traditional currencies, when people want to do more
transactions or save more, the amount of the currency grows (if governments are
doing their job), so the value stays about the same. Not so with cryptocurrencies!
Their supply is driven by software which generally creates new coin at a fixed pace,
regardless of the demand for the coin. So whenever people want more, whether for
transactions or to speculate for future values – or just because they’re
enthusiastic about coin – the value grows. When people want less, the value drops.
It’s all about demand. So with cryptocurrencies, know what you own. Do you think cryptocurrencies are a good investment? Let us know your comments.
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