Bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Bitcoin’s creator, Satoshi Nakamoto, originally described the need for “an electronic payment system based on cryptographic proof instead of trust.”
Every Bitcoin transaction is accessible to everyone. Making transactions hard to reverse and difficult to fake. Bitcoins aren’t backed by the government or any issuing institution. There’s nothing to guarantee their value besides the proof baked in the heart of the system.
“The reason why it’s worth money is simply that we, as people, decided it has value—same as gold,” says Anton Mozgovoy, co-founder & CEO of digital financial service company Holyhead. Since its public launch in 2009, Bitcoin has risen dramatically in value.
Should You Buy Bitcoin?
In general, many financial experts support their clients’ desire to buy cryptocurrency, but they don’t recommend it unless clients express interest. “The biggest concern for us is if someone wants to invest in crypto and the investment they choose doesn’t do well, and then all of a sudden they can’t send their kids to college,” says Ian Harvey, a certified financial planner (CFP) in New York City. “Then it wasn’t worth the risk.”
The speculative nature of cryptocurrency leads some planners to recommend it for clients’ “side” investments. “Some call it a Vegas account,” says Scott Hammel, a CFP in Dallas. “Let’s keep this away from our real long-term perspective, make sure it doesn’t become too large a portion of your portfolio.”
In a very real sense, Bitcoin is like a single stock, and advisors wouldn’t recommend putting a sizable part of your portfolio into any one company. As Forbes states, most, planners suggest putting no more than 1% to 10% into Bitcoin if you’re passionate about it. “If it was one stock, you would never allocate any significant portion of your portfolio to it,” Hammel says.