What is Bitcoin? Bitcoin is an open-source, digital currency. That means that pretty much anyone can help create (or mine) Bitcoins and it’s only used for electronic payments. Because the currency is all digital, it’s not tied to a country and can pass quickly and anonymously as payment between people or people and companies.

Where can you use Bitcoin? You can use Bitcoin as online payments to other people and there are some ATMs that can be used to withdrawal your Bitcoins in exchange for local currency. There are also some companies – such as Expedia, Virgin Galactic, Overstock.com, Zynga, and Newegg – that allow for payment of goods in Bitcoin.

What are the risks? If you want to buy Bitcoin, you’ll either need to receive them from someone else or go through on online currency exchange to convert your local currency into Bitcoin. Because Bitcoin is only online, it’s possible that a thief can hack into an exchange and steal the Bitcoins held on that exchange. Without any governmental regulation or oversight, Bitcoin exchanges aren’t like having FDIC insurance. If someone takes your Bitcoins, they’re likely gone for good.

Just as with any other currency, pricing of Bitcoin can go up or down based on supply and demand. The price has increased significantly over the past year as demand for it has increased. If interest were to wane, it’s possible that Bitcoin could see a sharp pullback in price over a short period of time (which has already started happening this year).

Bitcoin as an investment. Of course, I can’t speculate if any investment is good for a particular reader. Typically, an investment that carries this much risk is best suited for someone willing to accept high risk. Even then, it’s often recommended that investments such as this only occupy a small portion of someone’s portfolio – the portion that someone is comfortable losing entirely if the investment loses all its value.

Here’s some insight from a well-regarded economist Robert Shiller on Bitcoin: Cnbc.com/2017/09/06/economist-robert-shiller-explains-how-bitcoin-resembles-past-bubbles.html

Bitcoin and similar digital currencies may be the wave of the future, but for most investors, digital currencies might be too much risk and too pricey for an investment today.

Contact Woody Derricks at Partnership Wealth Management, a comprehensive financial services company. Visit Partnershipwm.com for more information. Info here for informational purposes only.

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Woody Derricks, CFP®
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