It's been entertaining, to say the least, watching the rise of cryptocurrency from the sidelines.
Bitcoin ended the year with a staggering 5,700% return.
I've heard stories of waiters leaving a customer in the middle of an order to sell their coins during the 30% drop at Christmas. I've received text messages asking whether to invest in Bitcoin from people who have otherwise expressed no interest in investing including my younger brother and old friends from high school.
While blockchain technology will likely have far-reaching applications, Bitcoin itself is quite obviously a speculative mania much like tulip bulbs in 17th century Holland. Just because blockchain technology is revolutionary, doesn't mean Bitcoin isn't a fool's gold.
John Kenneth Galbraith, famed economist and diplomat, outlined the common characteristics of speculative manias in his book, A Short History of Financial Euphoria. Galbraith surmises that those who repeatedly drive these euphoric financial episodes are "often new, youthful, and always supremely confident... [with a] brilliantly innovative discovery in the financial and larger economic world." If that doesn't perfectly describe what we are seeing with Bitcoin, I don't know what does.
While the blockchain is a technological advancement, this isn't the first time a mania has ensued as a result of such a discovery, and it won't be the last.
There have been many things in the past driven to completely irrational prices, not because anyone thought they would produce something valuable, but merely because people thought they could sell them to someone else in the future for a higher price. This is called speculating.
But we aren't speculators. We are investors. Investing is purchasing an asset that produces a valuable product or service and cash flow for an extended period of time.
I don't believe buying Bitcoin helps anyone participate in the rise of blockchain technology. However, by owning a piece of every public company in the market, you will benefit from the impact of blockchain without having to play the risky speculation game.