Business & Real Estate

Column: What you should consider before buying bitcoin

Bitcoin is in the news again. This time it’s Tesla CEO Elon Musk’s announcement that he recently purchased $1.5 billion worth last month.

Its price subsequently spiked above $40,000. That’s for just one bitcoin. Musk also revealed that Tesla is planning to accept bitcoins for car purchases. Let’s hope the company’s cashiers will be provided with enough cash in their tills to be able to make change. Now that you know Musk is jumping on the bitcoin bandwagon, you might be inclined to invest in it as well.

But consider this:

• Can you afford to lose $40,000 or more with impunity? The volatility of bitcoin is legendary. Unlike most productive businesses, there’s no guarantee that its value can’t drop to zero. Even if its price holds up, there have been numerous instances of hundreds of millions of dollars’ worth of bitcoins having disappeared – likely stolen – from purchase exchanges. And there’s no regulator to turn to for help. Also, because there’s no record of the bitcoins you hold outside of your electronic wallet, they are as good as lost if you forget or lose the password – which has happened on several occasions.

• Bitcoin investments are not tax-free. Unlike with ordinary currencies, gains from bitcoin speculation are taxable at capital gains rates.

• Criminals and pornographers are the primary users of bitcoin as a medium of exchange to avoid tracing and detection. Is that an activity you really want to support?

It’s hard to resist gambling on something that has recently had such a stellar gain, is being hyped so frequently in the media and is even being adopted by some legitimate businesspeople – albeit ones who are pretty big risk-takers. If you can stomach the risks, go ahead. Or, alternatively, buy into one of its lower-cost cousins such as Ethereum or Ripple/XRP. But please don’t use money that you’ve been saving for and especially need for your future. The possibility of going on welfare at age 65 would surely not be a pleasant experience for anyone.

Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, email [email protected] or visit cognizantwealth.com.

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