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To ₿ or Not to ₿, That is the Question | From the desk of Matthew Haertzen

Whether to invest in Bitcoin (₿) has been one of the questions I am most often asked, though not quite as often since the price started to fall last November. While the question of whether to invest in Bitcoin and "suffer the slings and arrows of outrageous fortune" is not as dramatic as the life-or-death question Hamlet was asking, I would still like to explore the answer in hopefully a more straightforward way than his soliloquy.

Let's start with a breakdown of the pros and cons of Bitcoin and cryptocurrency in general.

Pros: Bitcoin is accessible, can be used for purchases in another country, and is easily traded with minimal fees. It is also decentralized (not regulated by the government) which means it cannot be taxed or frozen (though the government is working to address the taxation issue). Another upside to Bitcoin is the potential for high returns.

Cons: The decentralized nature of Bitcoin can also be a disadvantage, as there are no legal protections, and transactions cannot be reversed. If a password is lost or a virus corrupts your wallet, you could lose access to your funds. While there is a potential for high returns, there is a history of volatile swings in the price of Bitcoin. Like Hamlet, it is a legitimate question to ask ourselves, should we "rather bear those ills we have than fly to others that we know not of?"

In an interesting Wall Street Journal article, Greg Ip suggested that cryptocurrency might be included on the short list of innovations whose net contribution to society is negative, akin to asbestos or cigarettes. He said that cryptocurrency has driven the growth of ransomware, as 100% of ransoms are demanded in cryptocurrency. In fact, while cryptocurrency is used by some legal business, 75% more is exchanged by illegal entities.2 There is also a concern that mining and maintaining Bitcoin uses substantial amounts of electricity (about 91 terawatt-hours annually), more than the entire country of Finland.1

To return to the question of whether to buy Bitcoin, I would recommend investors start by reviewing their investing philosophy (see January's article Forest Service Campgrounds and Investing). I recommend choosing investments that will result in a diversified portfolio, including assets that don't always move in the same direction under changing market conditions. Beyond that, I recommend comparing any new type of investment to other investment options (such as stocks) and asking the following questions:

  1. Will it become more valuable in the future?
    A stock's value is based on the success of a business. Stock prices generally rise as the business becomes more profitable. While past performance does not guarantee future results, stock markets have a long history of increasing and growing returns.

    Traditional currencies like dollars have value in that the issuer (the government) will accept it back in payment of taxes. "The fact that the issuer promises to do something in the future is a liability on the issuer, ergo we can say that the currency is an asset for the holder."3

    Following this logic, cryptocurrencies' intrinsic value is effectively zero even though their price may be significant. The crypto market is based on speculation, and only if there is someone willing to pay more than you paid will you be able to sell it for more. You may have heard this referred to as the greater fool theory of investing. As soon as cryptocurrency investors decide it is not worth as much as you paid, you will be unable to profit by selling it for more. Because there is no business or intrinsic value backing the cryptocurrency, it is dependent on other investors' beliefs to determine its future value. That can be hard to predict.

  2. Is the risk level appropriate for the risk tolerance?
    The stock market is risky and can be volatile – you probably remember the 30% decline during the early stages of the 2020 pandemic or the 40% decline during the 2008 real estate crisis. Cryptocurrency is even more volatile and risky. A Yahoo! Finance article by Andrew Lisa highlights seven of the biggest Bitcoin crashes in history, with the largest decline at 99%.

    In short, trading cryptocurrencies carries a high level of risk and may not be suitable for all investors. No one should invest money in cryptocurrency that they cannot afford to lose.

  3. Does it provide other specific advantages, such as an inflation hedge?
    Inflation hedges are assets that do well in inflationary periods and can offset the loss of purchasing power when inflation is high. Oil stocks, for example, have historically served well as a hedge against inflation.

    Conversely, cryptocurrency's lack of intrinsic value makes it impossible to serve as a reliable inflation hedge. Some Bitcoin proponents may argue that the limited supply makes it valuable. For example, only 21 million Bitcoins are expected to be produced in total. However, there are tens of thousands of different cryptocurrencies available, so as an asset class, they are not limited and, perhaps more importantly, without regulation the rules can be changed at any time.

    It may seem like everyone and their dog (literally, one cryptocurrency is called DogeCoin) has created their own cryptocurrency or at least owns some. So, I suppose you could say it provides an opportunity to be trendy and cool, although that's not something I aspire to when making investment decisions.

I always tell clients that their money is their own to decide how to invest. My job is to provide information, discipline, and experience to help inform those decisions. My hope is now you are more prepared to answer the question, to ₿ or not to ₿, for yourself.

For those of you interested in reading more, the investment firm GMO wrote a short piece on Bitcoin which is one of the best I have read. You can find the Bitcoin discussion in the appendix of their recent inflation white paper using this link: GMO White Paper.

If you would like to discuss cryptocurrency or any other investment with me, you can email me at or call (520) 204-1058.

You can also schedule a meeting directly with me using this link: Schedule with Matt


Matt Haertzen
Matt Haertzen, CFA, CFP


  1. Bitcoin Uses More Electricity Than Many Countries. How Is That Possible?
    Huang, Jon, Claire O'Neill and Hiroko Tabuchi
    The New York Times. 3 September 2021.

  2. Cryptocurrency Has Yet to Make the World a Better Place.
    Ip, Greg
    The Wall Street Journal. 20 May 2021.

  3. Part 2: What to Do in the Case of Sustained Inflation.
    Montier, Manes and Philip Pilkington.
    GMO White Paper. September 2021.


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