An investment, as described by Webster dictionary, can be anything that an investor believes will produce income in the future or be worth more than it is today at some point in the future. Common investments include but are not limited to stocks, bonds, real estate, jewelry, artwork, or antiques.
Speculation, again as described by Webster dictionary, is the assumption of unusual business risk in hopes of obtaining commensurate gain. The dictionary has a definition of speculation specifically for students or kids which is, 'the taking of a big risk in business in hopes of making a big profit.'
The current situation with Bitcoin can best be explained by quoting the Merriam-Webster website when it is explaining speculation.
"Speculation can increase short-term volatility (and thus, risk). It can inflate prices and lead to bubbles, as was the case in the 2005-2006 real estate market in the UniteStates. Speculators who were betting that home prices would continue to increase purchased houses (often using leverage) intending to "flip" them for a profit. This increased the demand for housing, which raised prices further, eventually taking them beyond the "true value" of the real estate in many markets. The frenzied selling that ensued is typical for speculative markets."
Currently, it would be hard for anyone to argue that Bitcoin and other crypto-currencies aren't experiencing speculator behavior based on the above explanation.
The mind-blowing price appreciation of Bitcoin has attracted speculators to it, which has only caused the price to skyrocket even higher. These speculators, for the most part, don’t consider themselves such. Many of the so-called 'investors' in Bitcoin will tell you that it is a currency, which can and is being used as payment for goods and services.
While that is true, at the current time, it's just way too volatile to be used as a currency for daily transactions. Bitcoin is so volatile you don’t know how much it's really worth at any given time. Thus you could be way overpaying for an item or way underpaying. Because of this, businesses will not adopt it on a mass scale until its volatility drops, due to their increased risk of losing money on transactions.
Bitcoin's volatility will not likely fall until the bulk of the risk associated with owning Bitcoins no longer exists. But that won't likely happen until governments around the world publicly announce Bitcoin is safe from regulation. That, unfortunately, is unlikely to happen also until the flow of Bitcoins can be traced, which is completely against the allure of using blockchain technology as a currency in the first place.
If governments can't track Bitcoins, they can be used for illegal transactions, and it doesn’t allow government oversight. In the case of China the government can't stop money from flowing out of the country or in other cases, governments can't tax transactions made with Bitcoins.
So why does all of this matter?
Well back to my original point, Bitcoin is nothing more than a speculative investment. Bitcoin has no intrinsic value because it will never be a true currency and it has no other purpose other than being a speculative investment opportunity. Therefore it will eventually collapse when speculators realize there is no value to be found in owning the Bitcoin.
While I don’t know when that will happen, I can tell you how it will happen. The price of Bitcoin will eventually climb to a level that causes new money to no longer continue to flow in, that will cause a selling frenzy, the price of Bitcoin will plummet, and unlike previous Bitcoin crashes, no recovery will ensue.
As I have previously stated; be a Bitcoin pig, not a hog.
Disclosure: This contributor did not own shares of Bitcoin mentioned above. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.