Are cryptocurrencies an investment?
That should be the first question one asks. With more than twenty years of investing experience and as a former investment banker my verdict is a clear No. Cryptocurrencies are as much of an investment as trading in any other currency. They are pure speculation. Cryptocurrencies are as much an investment as shifting money back and forth between the Canadian and US dollar. Does that mean cryptocurrencies are a Ponzi scheme or worthless? Far from it.
I believe that cryptocurrencies have a fantastic future ahead of them. I don't know whether it will be bitcoin - in fact as it stands currently with the slow verifications and high transaction fees I believe they will become negligible unless the technology evolves fast. It may be any other cryptocurrency beside bitcoin. It may be dogecoin, litecoin, monero, or any other currency. It could potentially be a cryptocurrency that is not even invented yet. As the requirements evolve with increasingly higher demands for transaction verifications and an ever growing network, thus does the technology need to evolve. Do I believe that they will replace government-issues currencies such as dollar, yen, or euro. Most certainly not. But could they simply be another currency allowing global transactions? Most certainly.
Great, so cryptocurrencies are a gamble, not an investment?
Back to the initial question: are bitcoin and other cryptocurrencies a good investment? No, any investment needs to have an intrinsic value. Take for instance, shares. One share represents equity in a company. It is equivalent to the company's innovations, products, employees, capital, and client base. With every share an investor owns more increasing more of the co pant and thus its assets and capital - from human to financial. A share's intrinsic value is whatever value it represents in proportion to the number of shares that the company issued. If a company has 1 million dollar in financial capital and has issued 1 million shares, the share's intrinsic value is 1 dollar. If you then add the value of investments, products, patents, machinery, and human capital, the share's intrinsic value increases accordingly.
Or take a property. If you buy a property its intrinsic value are the bricks, the labor costs, the potential rental income and so forth.
Cryptocurrencies, and currencies in general posses no such intrinsic value. They are simple means to ease trading between different parties. They represent whatever value the respective parties attribute to the currency. If people charge one dollar for a pack of chewing gum, then that's simply the price. It could just as well be a kilo of sand in exchange for a pack of chewing gum. The value of cryptocurrencies and currencies such as dollar or yen are merely what people perceive them to be worth in exchange for a certain good. Of course any government, or in the case of bitcoin, the principle of scarcity can be applied and thus the perceived value be increased or decreased determined by the number of dollars or bitcoin that are issued. In the case of bitcoin only 21 million were initially issued and thus they will, if they survive as the actual currency for daily transactions, find their perceived value eventually.
However, that still does not make bitcoin an investment.
I hope and believe that eventually cryptocurrency will run parallel to the existing government-issued currencies such as dollar, euro and yen. Whether that cryptocurrency will be called bitcoin, litecoin, IOTA, or else the cryptocurrency of the future remains to be seen, but an investment none of them are. They are simply, and hopefully, a means to pay another party for their services or products.