When a friend sent my wife and me bitcoin as a gift for our wedding last fall, we weren’t quite sure what to do with it.
Should we think of the seven-year-old digital currency like an investment and try to ride its daily fluctuations like a stock? Should we convert it back into dollars and avoid the market entirely? Or should we spend the bitcoin through a vendor that accepts it?
Our indecision spoke to a fundamental question that many are grappling with as bitcoin matures: Is it a currency used to buy and sell things or an investment that could reap big gains and losses? As a financial journalist who had only watched bitcoin from afar, I was interested in finding an answer for myself.
We hadn’t figured out what to do with the bitcoin when the market made the call for us. One bitcoin, which had been worth about $230 around the time of our wedding in September, jumped to about $430 by the end of the year. At that point, we wanted to see how far the rally would go, so we left the 1.05 bitcoin in our Coinbase wallet that effectively served as our bitcoin-denominated brokerage account.
The year started on a subdued note for the digital currency, with the price dipping throughout the winter, and then remaining between roughly $400 and $500 for most of the spring.
My friend called me at the end of May to tell me about something called the halving. That’s an event that happens once every four years, when the reward for mining bitcoin is cut in half. That hampers the flow of new supply, ostensibly pushing the price up, though it’s debatable how much of an effect the event has on the price. The halving is slated to occur in July.
Sure enough, bitcoin surged rapidly through the end of May and into June, at some points topping $750 apiece. That’s when we decided that we better start taking profits. At the beginning of last week, I tried to sell some of the bitcoin, but realized I needed to hook up my bank account to the bitcoin wallet, which took a couple days. In that short time-frame, the value of bitcoin fell by more than $100.
In reporting this story after the fact, I talked to Coinbase about the delay. Ankur Nandwani, a product manager at Coinbase, told me that it’s due to the slow pace of the U.S. bank transfer system, not my bitcoin wallet. In fact, one of the goals of bitcoin is actually to make secure transactions speedier, he said. The firm also supports use of debt and credit cards, which work in real time, but that comes with higher processing fees charged by the card networks, he said.
Despite the price drop, we still had made a substantial gain on our holdings. We decided to sell about three-quarters of a bitcoin for more than double its value back in September when we received it, and let the remaining portion continue to ride the market.
Selling through Coinbase was surprisingly easy. I selected the amount I wanted to convert back to dollars, accepted a 1% fee, and confirmed the sale. When I talked to Coinbase later about the transaction, Adam White, vice president of business development, told me the company ensures that I receive the price I am quoted if I confirm the sale within 30 seconds, even if the price has changed when the firm goes to trade my bitcoin on their exchange. The 1% fee is basically payment for the currency translation.
Since the sale, bitcoin’s price has dropped a bit from its peak, but it’s still hanging out above $600 apiece. I’m planning to let the remaining amount ride the market.
So, is bitcoin a currency or an investment? Based on my experience, I think it’s an investment, at least right now. Many think of bitcoin like gold: a store of value whose price ebbs and flows with demand. But I began to think of it as more like a small-cap stock that’s flying high right now: Investing in it requires a healthy dose of speculation.
That’s not to diminish the positives of bitcoin: It’s fun, easy-to-trade, and, to me, represents actual value. At the same time, it is volatile enough that I’d be hesitant to store money in it that I’d like to readily spend.
Currencies can also be very volatile, as British sterling’s 10%-plus drop in recent days has shown. But bitcoin has more than doubled in value this year and there’s the always-present possibility it could drop by just as much or more. That convinced me storing anything more than a small investment in the digital currency would be too risky for me.
Until bitcoin becomes more, well, boring, I’ll keep my savings in dollars.