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Why You Should Ignore Bitcoin Headlines

Have you heard of Bitcoin? How about cryptocurrency? If you haven't, don't worry, this is still pretty new stuff. If you have, it's probably been in the context of how you can profit from Bitcoin or how to find the next cryptocurrency.

 


Ignore The Headlines


I've been seeing too many headlines lately about how to get Bitcoin in your portfolio, how to profit from Bitcoin, or what Bitcoin's role should be in your portfolio. Then I saw this yesterday, "If you invested $1,000 in Bitcoin in 2010, you could now have a stash worth as much as $46 Million! It's not too late to find the next bitcoin though, thanks to a leading Bitcoin  Expert's 3-step trading method."


You should notice how this author cherry-picked the time period and used a hypothetical example. This taps into your jealousy emotion - what if you would have gotten in? Then he taps into your greed emotion by telling you that you can find the "next" Bitcoin if you pay him some money. 


Here is why you should ignore all these headlines. 


What Is Bitcoin? Or Cryptocurrency For That Matter?


Bitcoin is a cryptocurrency. It literally means currency that is encrypted. It's digital currency, that is not backed by a government. Some of you may like that, other will hate it, but the point is not whether digital currencies are good or bad, but to make sure you understand how currencies operate before "buying" some bitcoin to try and capitalize on a trend. 

If you have an account denominated in Bitcoin, then you have to spend your Bitcoin at places that accept Bitcoin. If you want to spend your Bitcoin at a place that only accepts dollars, then you have to exchange your Bitcoin for dollars. 


What Is The Price Of A Currency?


The price of a currency is called its exchange rate. It's not like other assets that just have a price. Most assets (stocks, bonds, your house, your car, jewelry) have a price in one currency - most of you are most familiar with US Dollars - and the price can range from $0 to infinity.


Exchange rates are different. An exchange rate is the price of one currency in terms of another currency. Meaning, there is no "price" of a US Dollar. There is a US Dollar / Canadian Dollar exchange rate. There is a US Dollar / Mexican Peso exchange rate. There is also a Canadian Dollar / Mexican Peso exchange rate. All three of these exchange rates are competing with one another. 


So when you hear people talking about Bitcoin's price, they are usually talking about the US Dollar / Bitcoin exchange rate. But it is very important to keep in mind t