Are you a 'greater fool' for owning Bitcoin?

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Is Bitcoin truly an investment? The post Are you a 'greater fool' for owning Bitcoin? appeared first on The Motley Fool Australia.

If you've been investing for a while, you may have come across a concept known as the 'greater fool theory'. This refers to certain types of 'assets' whose true value is difficult to determine, or detached from any kind of real grounding. The theory goes that the only way to make a profit from these assets is to buy them and later sell them to an even 'greater fool'. Could Bitcoin (CRYPTO: BTC) fall into this bucket?

Before we travel any further down this path, I should make clear that I am no Bitcoin hater. Indeed, I still own some of this cryptocurrency, and have done well by owning it for many years.

However, I have been pondering this question much of late. Most investments are fairly easy to put a valuation tag on because they generate a stream of income. Investment properties produce rental income, and companies, at least the successful ones, generate profit. Bitcoin, however, famously does not fall into this bucket. Bitcoin pays no income, meaning that, if you own it, you do not receive any rewards for doing so. The only way to make a return after buying this cryptocurrency is by selling it at a higher price than what you bought it for.

Bitcoin shares many of the characteristics of these assets, mainly scarcity. As such, many investors also use it as a store of wealth or buy it in the hopes of making money.

That's primarily why I bought Bitcoin many years ago. However, I am now rethinking my future when it comes to owning this digital asset. As an investor whose primary aim is to grow my wealth, not just maintain it through diversification, I'm now not so sure about what the future holds for Bitcoin.

Bitcoin is also a prime target for cyberattacks. Late last month, US crypto giant Binance was the subject of a major hack, with more than US$6 billion in cryptocurrency stolen. Luckily, Binance customers have reportedly been compensated for this theft. However, this is still a source of concern as a holder myself.

All in all, I am less convinced than I used to be that…

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