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Thinking of buying into Bitcoin? Make sure you know the risk

Bank of America: Bitcoin is mother of all bubbles
Bitcoin
Posted at 1:25 PM, Jan 21, 2021
and last updated 2021-01-21 13:25:50-05

Have you heard of Bitcoin, the digital currency?

If so, you may have heard that it recently doubled in price in late 2020 which has many people scrambling to jump on the bandwagon and make an investment.

But before you buy some, it's important to know the risks.

Bitcoin is red hot. The value of a single bitcoin exploded from $20,000 to $40,000 between December and Jan. 10, making big money for investors.

But it then dropped 20 percent, burning investors who arrived late at the party. It has since gone up and down by as much as 10 percent in a day.

Fortune magazine says Bitcoin is a bubble that has popped several times, most recently March 2020, when it plunged 60 percent.

CNBC's Jim Cramer says it can be a portion of your investments, and says he owns some. But he says only play what you can afford to lose, just like in a casino.

Know the risks of any investment bubble

From the "doesn't that stink" file: What can happen when a bubble bursts.

Most younger investors may not remember the 1999 Dot Com bubble when any stock with a .com at the end doubled in value within days.

It all crashed when the bubble burst and late investors lost fortunes. The poster child for the Dot Com bubble was Pets.com, the online pet supply company with the famous sock puppet, which simply grew too fast too quickly (the domain was later purchased by PetSmart).

Bank of America calls Bitcoin "the mother of all bubbles," so invest accordingly.

It's not a scam, which means you could make big money. But you could lose big money, too.

Could Bitcoin soon double or triple again? Sure.

But it could also plunge like it has several times before, so invest with the cash you can afford to lose, and don't waste your money.

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