What Does It Mean To Invest In Bitcoin ?

Bitcoin

Bitcoin has only been relevant on a large scale for a few years, and already there has been an active debate over how it should be classified as a unit of value. And this fall, that debate has reached its conclusion, at least for the time being, in two of the most influential financial markets in the world.

Recently, news broke that the European Union ruled that Bitcoin is a currency, not a commodity, which was significant mostly for tax purposes. Basically, the EU’s Court of Justice had to make a decision as to whether or not cash-to-Bitcoin transactions should be taxed. And they ultimately decided against such a tax because of existing rules prohibiting taxes on “transfers of currency, bank notes, and coins used as legal tender.” Thus, the ruling can be taken as official clarification that Bitcoin is viewed by the EU’s legal authorities as falling under that same umbrella—something “used as legal tender.”

The U.S., however, appears to have made the exact opposite decision regarding the classification of Bitcoin. In September, the Commodity Futures Trading Commission determined that Bitcoin would be classed as a commodity, putting it in line with resources such as gold and oil, rather than on a fast track to becoming a recognized, official currency. This was not an exact parallel to the court ruling by the EU, but it nevertheless demonstrates just how uncertain both the public and government officials are as to what we should make of the cryptocurrency.

For Americans, the determination by the CFTC sends a fairly clear message: Bitcoin should be treated like a resource in which you can invest, rather than a currency that you should collect and use. To be clear, this is not meant as specific advice regarding your own handling of Bitcoin. Despite a lack of government regulations, Bitcoin is already accepted by a wide array of online businesses in the States, and it is also increasingly accepted in physical retail stores. You can stock up on Bitcoin as you would any ordinary currency and use it at any number of places to purchase goods and services.

But at the very least, the CFTC’s classification appears to be a nudge toward investing, rather than collecting to spend. But what exactly does it mean to invest in Bitcoin?

As mentioned, it’s somewhat like delving into the gold or oil market. But for purposes of trading, Bitcoin may actually be closest to the forex market. In that market, traders buy and sell various world currencies against one another in the hopes of holding one currency as its value goes up and then selling it back for more of a different currency than it was initially worth. Because Bitcoin is measured directly against currencies, it can be looked at somewhat similarly from an investment standpoint. The idea is to buy a given amount of Bitcoin with your usual currency with the hopes of selling the Bitcoin back in the future for a higher value of your original currency.

As to whether or not such an investment is strategic, it depends a great deal on your view toward the future of Bitcoin, and cryptocurrency in general. There’s still a great deal of debate as to where the currency (or commodity, perhaps) is going from here, though most projections appear to be trending up. We’ve seen Bitcoin’s value spike and crash in recent years, and in 2015 it’s experienced a fairly steady rise, and even hovered at a value close to $400 for some time. But investing in Bitcoin requires the same careful scrutiny and projection that any ordinary stock or commodity demands. Specifically, you would want to look at which companies or industries may soon be accepting the cryptocurrency, where the currency might expand, and whether or not the economic conditions in major financial markets appear ready to facilitate a rise in value over time.

What it means to invest in Bitcoin is to put your financial backing behind a technological resource with potential for growth. Some would argue that putting a little stock in Bitcoin before it becomes prohibitively expensive is a no-brainer. But the counterargument is that limited utility could also keep Bitcoin from reaching any sort of lucrative price point in the future. The decision of which viewpoint to trust has to be a personal one for each investor.

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