Bitcoin (BTC) was crushed last week

Investors in bitcoin are taking more heavy losses as the price of bitcoin plunged to below $7,000 last week. Cryptocurrencies in general have been in freefall. There seems to be no direct explanation for why Bitcoin has suffered such heavy losses, apart from the fact that there are fears of a global trade war between China and the United States.

I have previously warned on the risks of buying bitcoin and maintain that one of the reasons it is so difficult to invest in a speculative currency like bitcoin is simply the fact that there is no way possible to calculate the coin’s exact intrinsic value. Compared to investing in a business which has earnings, dividends and business prospects, investors in bitcoin are simply gambling that someone will come around and pay more for their bitcoin than their purchase price. It is essentially a game of greater fools, until the music stops.

While bitcoin has even been touted by some experts as a potential reserve currency I don’t see how this could possibly ever take place. One of the most important components of a currency is surely pricing stability. Imagine going to the supermarket to buy milk and having the currency amount changing on a daily basis? That is exactly what would happen if bitcoin were to become a global reserve.

In reality that won’t happen and the best thing investors could do with bitcoin would be to avoid it.

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Motley Fool contributor mpinto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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