Ask the Economist: Should a Christian Invest in Bitcoin?

Read this article earlier today. Bottom line: bitcoin is at best speculation and at worst gambling.

The financial people I follow and trust don’t recommend investing more than 5% of your total portfolio in these types of speculative ventures.

Ecclesiastes 11:2

Yes. And 5% can be too much depending on how much margin you have between your goal and your assets. Our analysts did a decent job of breaking this down… https://www.edwardjones.com/us-en/market-news-insights/guidance-perspective/bitcoin-or-cryptocurrency-good-investment

One big difference between an investment and an asset is that an investment is always in a productive asset—a share of a company, a piece of real estate or equipment used for making something, or debt held by a productive company. As such, assets like gold, dollars, and bitcoin are “assets”, but not strictly investments.

So the Christian who wants to “invest” in Bitcoin ought to ask himself exactly what productive enterprise is at hand. Worse yet, Bitcoin is fiat money without the government fiat. It’s tracked by blockchain, so it’s harder to counterfeit, but it can go to zero in a hurry.

I first leaned about Bitcoin around 2012 on an economics podcast I listen to. I considered buying $1000 at the time. It would now be worth $30 dollars. I have bought $1000 more recently and it’s at about 1300. I personally think it’s a little better than gambling but the blockchain has not proven to be the revolutionary tech it was claimed to be.

Don’t go ‘all in’ … but silver and gold are real

BTC is a speculative investment and has a lot of volatility which makes buying and selling short term very difficult. As a longer term hold, BTC has outperformed almost every other investment. However, it has not been in existence long enough to see how it performs in the VERY long term. There are ways to invest in BTC relatively safely. Set alerts and sell orders or stop losses and you should be able to sell before losing money if it should plummet. I had purchased a significant amount of BTC in 2019, but I sold quickly when the stock market and crypto market had a huge crash in February 2020. I had alerts set and made a few thousand when I sold. However, if I had just ridden out the crash and held onto the BTC I had, I would be almost $400k in profit as of today.

Josh P, if you had purchased $1,000 of BTC at its highest cost in 2012, that would have equaled approximately 75 BTCs, worth a total of over 4.5 million today.

What is the actual value backing up BitCoin in terms of real human flourishing? Silver and gold have a certain intrinsic desirability; company stock backs a company that presumably contributes to real human needs whether it’s breakfast cereal or health and beauty items or communications technology or whatever. BitCoin as such is desirable…why?

From what I understand, computers user a tremendous amount of energy to perform the calculations necessary to create (“mine”?) a unique, really long, complex string of numbers, right?

I have a hard time thinking abstractly about “value” in the economy. I can’t wrap my head around something if I can’t trace it back to what a human would want or need, and in turn be willing to exchange something else of value for what’s wanted/needed.

[M. Osborne]

What is the actual value backing up BitCoin in terms of real human flourishing? Silver and gold have a certain intrinsic desirability; company stock backs a company that presumably contributes to real human needs whether it’s breakfast cereal or health and beauty items or communications technology or whatever. BitCoin as such is desirable…why?

Actually, you can ask the same questions of silver and gold. The metals have some intrinsic value as physical things that can be used in certain ways, but the intrinsic value is somewhat limited, nowhere near the market value of dollars per ounce these days. The same can be said of company stock. It’s really a construct, and often not connected with the tangible value of the company you have shares in, especially in the exchange market.

[M. Osborne] From what I understand, computers user a tremendous amount of energy to perform the calculations necessary to create (“mine”?) a unique, really long, complex string of numbers, right?

I have a hard time thinking abstractly about “value” in the economy. I can’t wrap my head around something if I can’t trace it back to what a human would want or need, and in turn be willing to exchange something else of value for what’s wanted/needed.

This is true of money also. It represents value, but it only represents human confidence in the value it represents. Right now we are in an inflationary cycle. A few weeks ago, I could buy gas for $1.25 per litre (roughly $5 per gallon). Now it’s over $1.60 per litre. The intrinsic value of the gas hasn’t changed. But the value of the money has. I can’t go in and offer the $1.25 of some weeks ago, if I want the gas, I have to pay the current price. But the tangible thing is the same. Money is just a mental construct, so in that way, Bitcoin (and others) aren’t all that different from “actual” dollars.

I am not an expert on this! In fact, I barely understand what I am saying! I listened to a podcast a couple of months ago where the guests were talking about it, but I can’t remember which one it was. Fascinating subject, though.

I’m not sure I would trade in bitcoin though, I think it’s too volatile to be safe.

[Ken S]

BTC is a speculative investment and has a lot of volatility which makes buying and selling short term very difficult. As a longer term hold, BTC has outperformed almost every other investment. However, it has not been in existence long enough to see how it performs in the VERY long term. There are ways to invest in BTC relatively safely. Set alerts and sell orders or stop losses and you should be able to sell before losing money if it should plummet. I had purchased a significant amount of BTC in 2019, but I sold quickly when the stock market and crypto market had a huge crash in February 2020. I had alerts set and made a few thousand when I sold. However, if I had just ridden out the crash and held onto the BTC I had, I would be almost $400k in profit as of today.

Josh P, if you had purchased $1,000 of BTC at its highest cost in 2012, that would have equaled approximately 75 BTCs, worth a total of over 4.5 million today.

Ok I’ll have to find the podcast again and check what year it was and the price. It’s been a while since I did the math. It came out to like 31 million.

[josh p]

Ok I’ll have to find the podcast again and check what year it was and the price. It’s been a while since I did the math. It came out to like 31 million.

I think you’re right, it could have been as much as 31 million - depending on when in 2012 you had bought it. Your original post said: It would now be worth $30 dollars. Must have just been a typo. Pretty disappointing, but at least your story is not as bad as the guy who bought a couple Papa John’s pizzas in 2010 for 10,000 bitcoins, $610,000,000 in today’s bitcoin value.

Oops! Yeah 30 million. Wow the pizza story is pretty bad all right! I’m honestly not sure I want the responsibility of that much money anyway.

Yes, bitcoin has done very well…..on the flip side, ask someone who was heavily invested in tech during the dot-com bust of 2000-2002. I had a coworker who lost (on paper at least) a couple of million bucks. Thankfully, he wasn’t investing on margin, but he got hit hard that way.

There is a place in investing for crazy ideas that just might work, but that place should not be “most of your assets”.

[Don Johnson]

Actually, you can ask the same questions of silver and gold.

A lot of people will tell you that silver and gold is the safest bet. And when the entire economy comes crashing down, you will be fine with silver and gold. I told everyone, look at what happened in New Orleans in 2005 when Katrina hit. That is probably the closest we have seen in our lifetimes of an entire meltdown. And what was important? What had intrinsic value at that moment for those individuals trapped in New Orleans? Not silver and gold. It was a weapon to defend your self, somewhere safe to sleep, clean water and some food. If you gave someone the choice at that time for a $5 gold coin or a gallon of clean water, they would have taken the water in a heartbeat.

The only difference between bitcoin and the stock market, is that at the end of the day bitcoin has nothing to back it up and it has no clear investment fundamentals. People speculate all the time on stocks. And stocks can be more volatile at certain times. Typically there are regulative fundamentals at work in the stock market and it is reacting to the creation of value that comes from the asset behind the stock. The volatility is regulated by the fact that there is confidence in the fundamentals. This is why the US stock market is the greatest on the planet. The fundamentals are highly regulated.

I agree with the article. At the end of the day bitcoin is a bubble. It is not regulated and there is nothing to back up the confidence. It is going up because of the interest, but at the end of the day there is only so much value that can be created. The safest investment bet today is considered the US Treasury. Not because there is any intrinsic value, but because the market feels that the US would not default on its debt, and if the US came to the point of default, the world will have already been in a disaster. The confidence is extremely high (even more so than gold or silver) and it is highly regulated and very secure.

Today: Bitcoin Loses About $3,000 in a Flash as Volatility Increases

https://finance.yahoo.com/news/bitcoin-loses-3-000-flash-185532718.html

In retrospect, I’m somewhat amused that TGC even ran this article. Look, if you’re starting to invest speculate in bitcoin now, you’ve missed the boat. If you want to speculate, look for the “next bitcoin,” the “next apple,” the “next amazon,” or the “next tesla.”

I’m constantly reminded that had I gone ahead and invested $5,000 in Apple when my older son was born (2001), life would be significantly different now ($5,000 —> $3.1M). In 2001, I knew Apple was a good company and had good leadership, but I did not pull the trigger.

Would of, could of…