Moe Zulfiqar: “I think the stock market is getting into the overbought territory. Gold (NYSEARCA:GLD) is due for a pullback. To be honest, I don’t see many opportunities out there other than bitcoins.” These were the words of wisdom from my good old friend Mr. Speculator. While most have forgotten about the virtual currency, Mr. Speculator thinks there’s an opportunity.
His reasoning behind this shows he is very naïve. He said, “The bitcoin prices have come down significantly from their highs. Buy low.”
It seems as if Mr. Speculator has forgotten one of the most basic lessons of investing.
Sure, bitcoin prices have declined—in fact, the word “collapsed” should be used. Just a few months ago, one bitcoin could be purchased for more than $1,100. Now, the price hovers below $700.00.
If you are considering bitcoins to be a good investment opportunity, you have to know what is really happening; there are too many concerns surrounding the currency, and investors should be aware of them.
One of the biggest concerns, among many, is that one of the main exchanges where bitcoins could be bought and sold, called Mt. Gox, filed for bankruptcy. Before the exchange filed for bankruptcy, there were complaints about users not being able to withdraw money. With this, there is also evidence of fraudulent activity. (Source: Finley, K., “Bitcoin Exchange Mt. Gox Files for U.S. Bankruptcy as Death Spiral Continues,” Wired, March 10, 2014.) This is sending out a wave of fear.
Another concern is that usage of the virtual currency is being questioned. Will bitcoin ever get the currency status?
Consider this: a company called Balanced Energy LLC, based in the Southlake suburb of Dallas, Texas, was told by the Texas securities commissioner to stop using bitcoin for investments in oil and natural gas wells. This move by the state commissioner was the first of its kind. (Source: Preston, D., “Texas Tells Company to Stop Investments Using Bitcoin,” Bloomberg, March 11, 2014.)