Why Bitcoin is Stupid

Well, shit. I’ve been watching this situation for a few years, and assuming it would just blow over so we wouldn’t have to talk about it here in this place where we are supposed to be busy improving our lives.

But a collective insanity has sprouted around the new field of ‘cryptocurrencies’, causing a totally irrational worldwide gold rush. It has reached the point that a big percentage of stories in the financial news and questions in Mr. Money Mustache’s email inbox are about whether or not we should all ‘invest’ in BitCoin.

We’ll start with the answer: No, you should not invest in Bitcoin. The reason is that it’s not an investment. Just like gold, tulip bulbs, Beanie Babies, 1999 dotcoms without any hope of a product plan, “pre-construction pricing” Toronto condominiums you have no intent to occupy or rent out, and rare baseball cards are not investments.

Update, 15 months later: The imaginary price of Bitcoin is down over 70% since I wrote this, and a recent study reveals that about 95% of even the trading volume is fraudulent. So I’m feeling pretty good about this article in retrospect, but please read on to learn how to see and avoid future bubbles.

These are all things that people have bought in the past, and driven to completely irrational prices, not because they did anything useful or produced any money and value to society, but solely because they thought they would be able to sell them to someone else for more in the future.

When you make this kind of purchase, which you should never do, you are speculating, which is not a useful activity. You’re playing a psychological, win-lose battle against other humans with money as the only objective. Even if you win some money through dumb luck, you have lost some time and life energy, which means you have lost.

Noticed this ad on the corner of a website recently … because we ALL need daily updates on an obscure piece of niche software technology!

Investing means buying an asset that actually creates products and services and cashflow for an extended period of time. Like a piece of a profitable business or a rentable piece of real estate. An investment is something that has intrinsic value – that is, it would be worth owning from a financial perspective, even if you could never sell it.

Now, with that moral sermon out of the way, we might as well talk about why Bitcoin has become such a big thing, so we can separate the usefulness of the underlying technology called “Blockchain”, from the mania about how people have turned Bitcoin it into a big dumb lottery.

This separation is important because the usefulness of Blockchain is the primary justification people use for the big dumb Bitcoin lottery. 

Once you make this separation in your mind, you can see that Blockchain is a simply a nifty new software invention (which is open-source and free for anyone to use), whereas Bitcoin is just one well-known way to use it.

Blockchain is just a computer protocol, which allows two people (or machines) to do transactions even if they don’t trust each other or the network between them. It can have applications in the monetary system, contracts, and even as a component in higher level protocols like sharing files. But it’s not some spectacular Instant Trillionaire piece of magic.

As a real world comparison, I quote this nifty piece from a reader named The Unassuming Banker:

… imagine that someone had found a cure for cancer and posted the step-by-step instructions on how to make it on-line, freely available for anyone to use.

Now imagine that the same person also created a product called Cancer-Pill using their own instructions, trade marked it, and started selling it to the highest bidders.

I think we can all agree a cure for cancer is immensely valuable to society (blockchain may or may not be, we still have to see), however, how much is a Cancer-Pill worth?


Our Banker friend goes on to explain that the first Cancer-Pill might initially see some great sales. Prices would rise, especially if the supply of these pills was limited (just as an artificial supply limit is built right into the Bitcoin algorithm.)

But since the formula is open and free, other companies would quickly come out with their own cancer pills. Cancer-Away, CancerBgone, CancEthereum, and any other number of competitors would spring up. Anybody can make a pill, and it costs only a few cents per dose.

And yet imagine everybody started bidding up Cancer-Pills, to the point that they cost $17,000 each and fluctuate widely in price, seemingly for no reason. Because of this, newspapers start reporting on prices daily, triggering so many tales of instant riches that you notice even your barber and your massage therapist are offering tips on how to invest in this new “asset class”.

But instead of seeing how ridiculous this is, even more people start piling in and bidding up every new variety of pills (cryptocurrency), over and over and on and on, until they are some of the most “valuable” things on the planet.

NO, right?

And yet this is exactly what’s happening with Bitcoin. And if you haven’t been digging into the cryptocurrency world much, it gets way weirder than this. Take a look at this shot from the website coinmarketcap.com, and observe the preposterous herd behavior in real life:

Fig.1: Various cryptocurrencies, ranked by how many people have been fooled.

“Holy Shit!” is the only reasonable reaction. You’ve got Bitcoin with a market value of $234 Billion Dollars, then Ripple at $92 billion with Ethereum right behind at $85,792,800,592.

These are preposterous numbers. The imaginary value of these valueless bits of computer data represents enough money to change the course of the entire human race, for example eliminating all poverty or replacing the entire world’s 800 gigawatts of coal power plants with solar generation. Why? WHY???

An Aside: Why should we listen to you, Mustache?

I’m only a mediocre computer scientist. But coincidentally, after I got my computer engineering degree I ended up specializing in security and encryption technologies for most of my career. So I did learn a bit about locking and unlocking information, hacking, and ensuring that independent brains (whether they are two adjacent CPUs on a circuit board or two companies negotiating across the Pacific) can trust each other and coordinate their actions in lockstep. I even read about these things for fun, with Simon Singh’s The Code Book and the Neil Stephenson novel Cryptonomicon being particularly fun shortcuts to pick up some of the workings and the context of cryptography.

But that’s just the software side (Blockchain). Bitcoin (aka CancerPills) has become an investment bubble, with the complementary forces of Human herd behavior, greed, fear of missing out, and a lack of understanding of past financial bubbles amplifying it.

Mustachianism – the mental training that gets you to very early financial freedom – requires you to evaluate inefficiencies in our culture and call bullshit upon them. Even if you are the only one in the room willing to do it.

In the field of personal wealth, this means walking your children past the idling lineup of your neighbors’ Mercedes SUVs, over the snowy grass and up to the door of the school – and being confident that you are doing the right thing. Even if you’re the only one doing it.

When evaluating investment bubbles, it means looking at where everyone is throwing their money – no matter how many billions – and being willing to say “Bull. Shit. Guys. Not going to do this with you.”

So I also read a lot about investment bubbles and fundamentals and how to tell those apart. One book that I found very useful in understanding the greed-fear cycle (and Central Banking and the Federal Reserve system to boot) is the 2001 classic Towards Rational Exuberance by Mark Smith. For a shortcut to understanding good investing, you can also simply look up Warren Buffet’s thinking on almost any topic – he’s careful enough about offering opinions that by the time he makes a statement on something, you can be pretty sure it will be among the best answers out there.

And of course, the purpose of this whole aside is that I want to establish credibility with you, so you will give this article some consideration. I believe the current Cryptocurrency “investment” mania is a huge waste of human energy, and our rate of waste has been growing exponentially.

The sooner we debunk the myth and come to our senses, the richer our world will be. So we need more credible people to speak out against it. If you’re one of these credible people, please do so in the comments or in a blog post on Medium that we can all read.

Why was Bitcoin Even Invented?

Understanding the motivation is a big part of understanding Bitcoin. As the legend goes, an anonymous developer published this whitepaper in 2008 under the fake name Satoshi Nakamoto. It’s well written and pretty obviously by a real software and math person. But it also has some ideology built in – the assumption that giving national governments the ability to monitor flows of money in the financial system and use it as a form of law enforcement is wrong.

This financial libertarian streak is at the core of Bitcoin, and you’ll hear echoes of that sentiment in all the pro-crypto blogs and podcasts. The sensible-sounding ones will say, “Sure the G20 nations all have stable financial systems, but Bitcoin is a lifesaver in places like Venezuela where the government can vaporize your wealth when you sleep.”

The harder-core pundits say “Even the US Federal Reserve is a bunch ‘a’ CROOKS, stealing your money via INFLATION, and that nasty Fiat Currency they issue is nothing but TOILET PAPER!!”

It’s all the same stuff that people say about Gold, which is also a totally irrational waste of human investment energy.

Government-issued currencies have value because they represent human trust and cooperation. There is no wealth and no trade without these two things, so you might as well go all-in and trust people. There are no financial instruments that will protect you from a world where we no longer trust each other.

So, Bitcoin is a protocol invented to solve a money problem that simply does not exist in the rich countries, which is where most of the money is. Sure, an anonymous way to exchange money and escape the eyes of a corrupt government is a good thing for human rights. But at least 98% of MMM readers do not live in countries where this is an issue.

So just relax, lean into it, and grow rich with me.

OK, But What if Bitcoin Becomes the World Currency?

The other argument for Bitcoin’s “value” is that there will only ever be 21 million of them, and they will eventually replace all other world currencies, or at least become the “new gold”, so the fundamental value is either the entire world’s GDP or at least the total value of all gold, divided by 21 million.

People then go on to say, “If there’s even a ONE PERCENT CHANCE that this happens, Bitcoins are severely undervalued and they should really be worth, like, at least a quadrillion dollars each!!

This is not going to happen. After all, you could make the same argument about Mr. Money Mustache’s fingernail clippings: they may have no intrinsic value, but at least they are in limited supply so let’s use them as the new world currency! 

Why not somebody else’s fingernail clippings? Why not one of the other 1500 cryptocurrencies? Shut up, just send me $100 via PayPal and I’ll send you a bag of my fingernail clippings.

Let’s get this straight: in order for Bitcoin to be a real currency, it needs several things:

  • easy and frictionless trading between people 
  • to be widely accepted as legal tender for all debts, public and private
  • a stable value that does not fluctuate (otherwise it’s impossible to set prices)

Bitcoin has none of these things, and even safely storing it is difficult (see Mt. Gox, Bitfinex, and the various wallets and exchanges that have been hacked)

The second point is also critical: Bitcoin is only valuable if it truly becomes a critical world currency. In other words, if you truly need it to buy stuff, and thus you need to buy coins from some other person in order to conduct important bits of world commerce that you can’t do any other way. Right now, the only people driving up the price are other speculators. The bitcoin price isn’t rising because people are buying the coins to conduct real business. It’s rising because people are buying it up, hoping someone else will buy it at an even higher price later. It’s only valuable when you cash it out to a real currency again, like the US dollar, and use it to buy something useful like a nice house or a business. When the supply of foolish speculators dries up, the value evaporates – often very quickly.

Also, a currency should not be artificially sparse. It needs to expand with the supply of goods and services in the world, otherwise we end up with deflation and hoarding. It also helps to have wise, centralized humans (the Federal Reserve system and other central banks) guiding the system. In a world of human trust, putting the wisest and most respected people in a position of Adult Supervision is a useful tactic.

Finally, nothing becomes a good investment just because “it’s been going up in price lately.”

If you disagree with me on that point, the price of my fingernails has just increased by 70,000% and they are now $70,000 per bag. Quick, get me that money on PayPal before you miss out on any more of this incredible “performance!”

Figure 2: Random people on Twitter doing some deep, useful Investment Analysis on Bitcoin. (Update from late 2018 – Mike ended up being wayyyy wrong.)

The world’s governments are not going to let everyone start trading money anonymously and evading taxes using Bitcoin. If cryptocurrency does take off, it will be in a government-backed form, like a new “Fedcoin” or “G20coin.” Full anonymity and government evasion will not be one of its features.

And you don’t want it for this purpose anyway – after all, do you currently hide your money in offshore tax havens and transact your business on black markets? Do you practice illegal tax evasion as your primary wealth strategy? Probably not, because life is better and wealthier when you aren’t living a life of crime.

The Cryptocurrency bubble is really a replay of the past: A good percentage of Humans are prone to mass delusions which lead to irrational behavior. This is a known bug in our operating system, and we have designed some parts of our society to protect us against it.

These days, stocks are regulated by the SEC, precisely because in the olden days, there were many, many stocks issued that were much like Bitcoin. Marketed to unsophisticated investors as a get-rich-quick scheme. The very definition of an unsophisticated investor is “Being more willing to buy something, the more its price goes up.”

Don’t be one of these fools.

Further Notes

About the Comments Section: Normally, I try not to publish comments that are just emotional reactions or totally uninformed. For this article, I have set the bar much lower to show you the religious conviction that crypto speculators have.

People are genuinely mad at me for calling out this speculative aspect (note that I did not criticize blockchain at all, just the idea of uninformed people betting on future price increases for the arbitrary “coins”).

The general trend seems to be accusing me of “not doing enough research”, even after I dug into this stuff pretty deeply for a long, long time. I remain open to more information on the uses of Blockchain, but I’ve never seen a valid fundamental reason for betting on future increases in the prices of these things.

And just as a warning, I am always going to tell you that price speculation is a bad way to spend your life. This part of it is ideological to me: You Must Earn Your Money By Creating Value for Everyone.

Here’s a great description of the whole scene by Chain CEO Adam Ludwin. You’ll note that without prejudice and emotion, he describes the actual uses of the technology, without getting into how we should all place uninformed bets on its future value. 

The real test of if you should be a cryptocurrency supporter: would you be exactly as passionate and spend the same amount of time thinking about it, if Bitcoin were still an obscure piece of code, worth less than one cent, and offered no chance of ever earning you any money? Because if you’re going to be an evangelist for anything, it needs to be purely based on the underlying merits, not what you hope it will do for your personal fortune.

This YouTube Video is one of the best shortcuts I found for explaining how Blockchain (and Bitcoin) works.

This Vice article explains yet another ridiculous aspect of Cryptocurrency: running the transaction network (called “Mining”) involves a deliberate computer-intensive crypto challenge syetem called “proof of work”. This inefficient design is now wasting more electricity than many entire countries. Doing one transaction burns 215 kilowatt-hours of electricity, enough to run the entire MMM household for more than a full month, or to power an electric car for more than 800 miles of driving.

Another interesting side-effect of bitcoin mining: big sales of computer graphics cards, and theft of electricity and cloud computer services. One of my coworkers at MMM-HQ works for nVidia, and part of his job is hunting down mining thieves who comandeer virtual servers (cloud computing) to mine coins on their behalf. Some of my conversations with him inspired the research in this article.

I enjoyed this analysis by Aswath Damodaran, a thoughtful investor and Professor at NYU school of business

Another intelligent case by highly experienced crypto business lawyer Preston Byrne. Favorite quote:

“Bitcoin’s growth is not based on its technology alone (which, while powerful, is open-source and therefore easily replicable) but rather on the strength of virality, encouraged by the vested interests who held early and invested in marketing it; with no genuine business underlying it, it acquires its (very substantial) memetic potency only from the evangelism of those who hodl and preach.”

David Webb’s great explanation: Bitcoin: the World’s First Decentralized Ponzi Scheme

Preston Byrne again (brilliant guy!): the Problem with calling Bitcoin a Ponzi Scheme



  • Doug October 25, 2018, 9:04 pm

    Why would anyone want to buy Bitcoin when stocks, or exchange traded funds that invest in stocks are on sale now? Wow, Black Friday sales came a month early this year!

  • Jim Brookhyser November 11, 2018, 11:41 pm

    “The sooner we debunk the myth and come to our senses, the richer our world will be. So we need more credible people to speak out against it. If you’re one of these credible people, please do so in the comments or in a blog post on Medium that we can all read.”

    There’s nothing more credible than taking a short position. Reading the comments above, it seems like that’s not something that can safely be done. That’s a problem. Seems like there needs to be a way to short these coins.

  • Cameron December 10, 2018, 6:25 pm

    Why Bitcoin is stupid: this time last year it was worth over $300 billion. Its total value is now hovering around $60 billion and falling by the week.

  • Tyler Child December 30, 2018, 12:36 pm

    Bitcoin price Jan. 7th 2018 = $16,174.22. Bitcoin December 30th 2018 (less than one year) = $3,729.31. Bitcoin in one year has lost over 75% of its “value”.

    As a one time enthusiast of the new block chain technology, I am less enthused now. When bitcoins (or any asset based blockchain) are stolen or hacked, who do you get to investigate the crime, the local sheriff or city detective? A hacker just got into our payroll system software, changing the direct deposit bank accounts of 8 people and directing it into their own single account stealing 6K. This so easily solved crime has no one law enforcement personnel that even understand how to deal with this sort of cybercrime. Blockchain crimes? Times it by 10,000.

  • anonymous lurker January 23, 2019, 2:23 am

    Reading these comments in January 2019 is just hilarious!

  • Matt February 20, 2019, 11:43 am

    Cryptocurrencies are similar to the tech startups of the 1990’s many will go bust, like Pets.com did, but there will also be some big winners in this space. Not all cryptos are like Bitcoin, even though they use the same blockchain technology. Think of it this way, just like the dollar is the worlds reserve currency and everything is priced in dollars around the world. Bitcoin is the reserve currency of the cryptocurrency space, cryptos are valued in Bitcoin.

    Many crypto projects are trying to disrupt entire markets by taking centralized control away from businesses and giving more control back to the people and lowering costs. What if you were able to post a video and get a couple of cents every time someone viewed it? How much money do you think You Tube makes off videos before they are willing to share any of that revenue with you? What if a business could eliminate counterfeit goods and guarantee a genuine item every purchase? What if you could have control over all of your personal data and monetize it yourself, instead of a company like google or facebook making all of the money and not sharing any of it with you? One project has created a tokenized carbon offset solution, to bring new liquidity to environmental trading markets and create simplified carbon accounting for enterprise users. What if instead of paying $100K or more for a rental property you could invest in rental property in $100 increments and still make a percentage of the profits?
    Check out his Forbes article….https://www.forbes.com/sites/yoavvilner/2018/09/29/9-blockchain-and-cryptocurrency-companies-all-set-for-2019/#4bc2606e1400

    Will it work? who knows, but just like internet stocks in the 1990’s, there will be some big winners in cryptocurrencies. I bought Ethereum when it was $10 in late 2016, took out more than my $500 investment and my crypto portfolio is worth just over $6k, so if it all goes to zero, I am still up. But with Wall Street getting ready to promote Bitcoin and cryptos to the masses as a new asset class, I think the next bull market in cryptos will make the last one look like a blip. https://www.ccn.com/nyse-owner-bakkt-is-our-moonshot-bitcoin-bet

  • Noob September 17, 2019, 5:14 pm

    Noticed there’s been no comments on this post since 2018. There were such strong opinions on something that had existed for such a short period of time. Should we revisit “trust” in a currency question? How about the opinion that we should ignore the use of cryptos because we live in 1st world countries and not care about its adoption in 3rd world countries where the majority of the world’s population lives? The Venezuelan example…a country where the cost of energy is next to 0 yet cryptos bypass govt controls so mining makes sense? Is lightning tech not being worked on to overcome the frictionless trading needed for BTC to become valuable? What about pricing becoming relatively stable recently? I believe this calls for a revision

  • Jsebastian September 18, 2019, 9:19 am

    I think it is strange to claim that it is irrational to purchase something just because you think you can sell it for more in the future. I mean just given inflation it’s a necessity that you must sell anything for more than you paid for it just because otherwise you’ll lose money on everything that you sell. Right?

    Interestingly enough cryptocurrencies like BTC offer a built in safeguard against inflation because creating the last one is so much more difficult than the previous ones. This is not true of Fiat currenvies which can be created in limitless amounts arbitrarily with no more work required to create the ten trillionth one than to create the first one!

    I also find it very bizarre to make the claim that Fiat currenvies have value because they “represent human trust and coooeration”. This is a laughable statement because they represent no such thing. This phrasing makes it sound like Fiat currency represents some kind of tangible social good that is generated by the innate characteristics of human beings. But it actually is backed by nothing .. just like cryptocurrencies. The government can create more Fiat currency by doing no work at all… Just making a few mouseclicks in a spreadsheet . But wait.. how did clicking the mouse increase the supply or degree of the human trust and coooeration in existence? It didn’t ….so that is clearly untrue.

    In reality Fiat currency is only backed by the idea that the government will extract enough taxes in the future to pay the debts that were created when Fiat currency was issued because that is what Fiat currency is. It is debt owed to a private central banker system. So the government basically allows these bankers to mouseclick more debt into existence….because the government has no way of actually paying back it’s existing debts,. And as a result all the existing debt is devalued… Just like if you issue more shares in a company. You are splitting up the same thing even more ways so each part is worth less. This is the cause of inflation….it is an increase in the quantity of markers of value without a corresponding increase in the store of value.

    If human trust and cooperation were really represented by money then you wouldn’t be able to trust anyone who doesn’t have any money and you should trust those who have the most money the most. But as you can see in reality neither of these things hold true. Fiat currency has zero intrinsic value, it is actually debt, and it will always be worth less if you increase it’s supply.

    Crypto does not have at least TWO of those three drawbacks.

  • Chris September 19, 2019, 5:26 am

    While I agree that speculation on Bitcoin (or gold, or any other commodity) is basically gambling, I don’t think that people should be so quick to dismiss the utility of Bitcoin.

    You can send Bitcoin around the world and back very quickly for next to nothing. You can also use Bitcoin without a bank account, which is something that most people in the world do not have.

    To a US citizen with a good credit score and a bank account, maybe Bitcoin seems superfluous. However, to an immigrant trying to send money home to her sick relative in Uganda, it’s revolutionary.

    Also, as far as the price stability goes, that is probably a function of the relatively small size of the market for Bitcoin. If it becomes more successful as a currency, it will probably be more stable. Even so, I’d contend that holding a large amount of any currency is a bad idea. You should hold the amount that you need for transacting, and trade the rest for assets which generate revenue (stocks, bonds, real estate, private businesses, etc.). That’s prudent.

    If someone is speculating on Bitcoin and they understand the risk, there’s nothing wrong with that. It’s certainly better than buying lottery tickets or going to Los Vegas. If markets recognize utility in Bitcoin, it very well could be worth much more in the future. Sometimes speculation and finding hidden value are one-and-the-same.

    Currencies are complicated. They can, and do go bust. Governments can freeze bank accounts and take them from you on a whim–ask someone from Greece or Cyprus. The US dollar has defaulted several times (Bretton Woods, Nixon shock, etc). Maybe Bitcoin is a better model. Time will tell.

  • Sindorf October 10, 2019, 12:11 pm

    Bitcoin may be a ponzi scheme. However, just think what are you gonna do when interest rates are so negative that you cannot afford keeping your cash saving in the bank. What other ways are there to store value? Real state? Good luck paying taxes. Physical gold? Good luck not being sold copper, and then how do you plan to move it around and secure it? Can’t think of other ways to store value except for the bitcoin ponzi, which is still very fine after 10 years being criticised and sentenced dead.

    As for the Cancer-Pill analogy, just watch this: https://www.youtube.com/watch?v=p0ftZgCEZos

    And finally, just want to leave a quote from the inventor of bitcoin:

    “If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry” – Satoshi Nakamoto

    Good luck… it’ll get tough out there soon….

    • Mr. Money Mustache October 11, 2019, 10:39 am

      Hahaha.. “what other ways can I store value?”

      How about not STORING our money at all, and instead INVESTING in things that produce value for our society? Like a business, stocks in existing successful businesses, farm, solar energy field, or apartment building? There is no “good luck” required to pay property taxes when your tenants are doing it for you, along with providing a fair return for you in exchange for providing them with a comfortable and energy-efficient and walkable place to live.

      I don’t care about interest rates, because I don’t need to keep much cash in the bank.

      Oh, and here in the US, Interest rates have been rising for almost five years at the time of this comment – which is kinda the opposite of being negative.

  • chevalierokeefe November 21, 2019, 9:32 am

    Haters gonna hate. I managed to pay off all my student loans and debts with money I cashed out with coins. I’m not sure we’ll ever see the highs we saw in 2018, and I’m not sure that we should if we hope for this technology to become a globally adopted currency. Specific coins may come and go, but cryptocurrency is here to stay, and I think if more people did research on how the protocol works they would understand how revolutionary it really is.

  • Lee Marshall June 2, 2020, 9:58 pm

    Bitcoin sucks. The idea may be good in its foundations but it has lost a lot of money for a lot of people. It’s not reliable. I’ve made more money at casinos than bitcoin. It’s been a real disappointment for these past 2 years. I sold all of my BTC and glad I did. Screw all the establishments that are ruining bitcoin.

  • B July 13, 2020, 8:18 am

    Bitcoin investing is total speculation

  • Anandh November 18, 2020, 11:02 am

    MrMoneyMustache, do you still feel this article is applicable?

    Paypal just opened up for bitcoin. Now buyers can buy / sell crypto in its platform. In its recent quarterly call, paypal confirmed their users will be able to pay for goods using crypto in mid 2021. I find the way they very interesting. They convert btc to fiat just before the transaction and pay in fiat to their merchants. This literally eliminates all regulatory and transparency issues.

    I changed my views on BTC just after this news. This wasn’t the case last few years, now lot of other wallets / payment networks might follow suit. I am fairly confident about the adoption in the near future. Given the amount of money being printed, prices should go up

  • Bob November 19, 2020, 4:44 pm

    As a long time crypto enthusiast, I will say that “you” are the only one that can determine whether or not Bitcoin has value. All the arguments for BTC are just “noise” if you don’t believe in it. And that’s ok.

    Bitcoin is not a capital asset as it has no cash flows. It has monetary value similar to gold, art, currencies, etc.
    Only you can determine if it’s worth anything. For example a work of art may be valued at $50M but it won’t be hanging on my wall, even if I could spend $50M

    And finally, even after careful research if someone thinks it has value, you now run into the question of whether it belongs in your portfolio. That needs to be thought through carefully as well. The answer is likely “no” for most.

    There’s no shame in saying “It’s not for me”

  • Strob January 29, 2021, 8:08 am

    Oh boy an article that didn’t age so well!

  • Jonathan January 31, 2021, 8:30 pm

    I have been spending a lot of time learning about crypto lately. I was originally motivated by curiosity and concern about the future of the United States. I worry about social upheaval and the collapse of the dollar. Most of what I read are people proselytizing, for the ideology or profit or both. I must say these arguments are compelling. I was very happy to see this article, from someone I have followed and respect, when searching “why crypto will fail.” I felt that I was in a bubble and needed other perspectives.
    I am curious to know the thoughts of this community regarding the value of cryptocurrencies given current events – namely social unrest and large-scale printing of money.

  • Chris February 8, 2021, 3:33 pm

    Hi Mr. MM,
    Just curious if you could provide us all with an update on your thoughts RE bitcoin in light of its continued performance, Tesla’s investment of $1.5B, etc. Is there a possibility that a small investment – say, even just 1% of your net worth – into bitcoin or certain other cryptocurrencies (certainly not all) might actually be a good investment? Or is it still rat poison squared? And, if so, is there any set of circumstances that would change your mind? Would it be a dollar figure – does bitcoin need to his $100K? $1M? Or would enough companies need to invest in it as a store of value, much like Tesla and a few others have, in order to change your mind? Or will it forever remain verboten?
    For the record, I’m a big fan and enjoy your blog and outlook on life. But I’ve also been following bitcoin and other cryptos for a while and I think there is a place for them in a well-balanced investment portfolio.
    Sincerely curious,

    • Mr. Money Mustache February 9, 2021, 10:10 am

      Hi Chris,

      First of all, the more something increases in price, the LESS interesting it should be to any investor. (Unless you are a speculator/gambler, which I always advise against).

      Secondly, Bitcoin is hoping to eventually become a widely-accepted currency, and there are already loads of those around. Do you stock up on USDs and RMB and JPYs as well, just as part of the portfolio? What about dollars in a PayPal account? Paypal is widely accepted worldwide and even allows seamless flows of money across currencies and borders, just as Bitcoin proposes to do. Why are people excited about Bitcoin rather than their paypal accounts?

      It’s all just because of gold rush bubble mentality, and it gets sillier the higher the price goes.

      • Mable February 16, 2021, 12:37 pm

        I understand being skeptic on Bitcoins. I was but now things have changed. There are a slew of Crypto debit cards and 1 Credit Card with 1.5% Bitcoin cashback rewards debuting 2021 in the US . This has been possible due to Visa getting into the Cryptospace; https://www.forbes.com/sites/billybambrough/2021/02/03/visa-reveals-bitcoin-and-crypto-banking-roadmap-amid-race-to-reach-network-of-70-million/?sh=5c8d6ca7401c . So where ever Visa is accepted, major forms of Crypto would be accepted to0. Mastercard is following suit; https://www.cnn.com/2021/02/11/investing/mastercard-bitcoin-bny-mellon/index.html . 2021 will be the year that Cryptocurrency starts to reach mainstream adaption.

        Coinbase, the largest Crypto exchange company, lets you withdrawal your Cryptocurrencies to Paypal. Paypal plans to enable Cryptocurrency as a payment source in early 2021; https://www.cryptoglobe.com/latest/2020/11/paypal-ceo-dan-schulman-talks-about-the-value-proposition-of-bitcoin/

        While Bitcoin has limited practical use, there are other Cryptocurrencies that do; from data storage to video streaming. The hottest 2021 Cryptocoins can process Crypto transactions to work with traditional banking systems and comply to Financial regulatory practices and standards. Those Cryptocoins made the Visa – Crypto deals possible, will allow Paypal to enable Crypto as a payment source, and is fueling the Decentralized Finance craze in the 202o-2021 Crypto market.

        Then there are Stablecoins; which are tethered 1:1 to the US dollar or other Fiat money. A Crypto trader can easily exchange popular forms of Cryptocurrency into a Stablecoin; to which they can either hold to reinvest into Crypto or completely cash out to fiat money.

        The US Government has okay’d Stablecoins to be used for Bank payments; https://www.financemagnates.com/cryptocurrency/regulation/us-treasury-announces-support-for-stablecoins-bitcoin-drops-below-30000/ . So banks are experimenting with these coins for B2B uses ; https://www.americanexpress.com/us/foreign-exchange/articles/us-banks-support-cryptocurrency-payments

        However not all Cryptocurrency can be converted into a Stablecoins or fiat money; either due to governmental restrictions or the will of the Cryptocoin’s creator. But all Cryptocurrency can be traded into or from Bitcoins; just like Gold can be exchanged with any type of fiat money. So Bitcoins value will hold as long as Cryptocurrencies have practical uses.

        Finally, all investments are speculative. The same people that brought us the modern day stock market are the same ones that participated in the Tullip mania; The Dutch. The Dotcom Boom gave us successful companies like Amazon and Google but also failures like Pets.com and Altavista. To those whose job is to “make money” Crypto is not something they can afford to ignore. While the risks are big, the rewards are huge.

        So rather or not you personally invest in Crypto, chances are high that your 401K, Mutual Fund, or Index Fund will in upcoming years. The most hyped IPO of 2021 is Coinbase, a huge player in the US Cryptoscene. Traditional investors who put up a public front against Bitcoins will buy shares in companies deeply invested in Crypto; like Coinbase, Paypal, and Square (which holds $50 million in Bitcoins) .

      • Vj February 18, 2021, 3:11 pm

        One big difference, Bitcoin has a limit and so a built in hedge against inflation – just like gold. USDs RMB, JPY all loose value with inflation.

    • Jwheeland February 10, 2021, 8:32 am

      Hi Chris,

      If you’ve bought some bitcoin or crypto and it is now worth more, I’d consider diversification. As bitcoin appreciates, to diversify sell some and invest the proceeds into your portfolio – (index funds, bonds, etc.). This is just a suggestion and not financial advice. Be mindful of capital gains tax (short term and long term). But, I think there’s a lot of folks whose position in bitcoin has done well. Congrats! Now it’s time to diversify.

  • Ian Warmbrodt February 23, 2021, 9:21 am

    Curious if Tesla’s recent Bitcoin purchase has modified your view at all. I know you’re a fan of Elon and Tesla. As Elon stated, his views are not the exact same as Tesla’s, but they have to be somewhat aligned.

    • Mr. Money Mustache February 25, 2021, 10:30 am

      It has definitely changed my thinking a bit on Tesla – I would have preferred they not gamble an entire factory’s worth of capital on something like bitcoin – it hurts Tesla and also increases the prominence of the coin, which increases its energy consumption even more (since higher prices raise the return on the useless “mining” activity).

      Elon has always been a brilliant engineer, but seems fairly unhinged in other areas (promoting cars while ignoring bikes and urban planning for example, his skepticism of the well-documented “induced demand” phenomenon of road expansions, his tendency to waste time on twitter posting random memes, battles with cave divers, not taking care of his own physical health, his belief that we have an underpopulation problem, etc.

      But the amount of good he is doing still makes him a hero to me overall.


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