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I bought $ 250 in bitcoin. This is what I learned



  Where is the skepticism while the bitcoin keeps going up?

Some people kill time at the airport looking in duty free stores. I decided to buy bitcoin.

But first, there are two things you should know about me: I tend to be almost as afraid of losing money investing as of flying. On a certain level, I thought that one fear could cancel the other.

So last Thursday, while waiting for a flight to Nashville, I took out a popular application called Coinbase that can be used to buy and sell bitcoin. The virtual currency had reached $ 1

0,000 for the first time a couple of days before, before going back a bit. The news of Bitcoin's rapid rise was everywhere, even on CNN.

For 15 minutes at the airport, I updated the price of bitcoin again and again, watching how I earned and lost hundreds of dollars in a matter of minutes. I called the price fluctuations breathless to my wife, who gently encouraged me not to be an idiot, before returning to her magazine.

She was in good company. JPMorgan Chase CEO Jamie Dimon recently called bitcoin a "fraud" and suggested that the people who buy it are "stupid." Warren Buffett called bitcoin a "mirage" in 2014 and warned investors to "stay away."

Related: Bitcoin goes up $ 900 in 14 hours. What's going on?

And even bitcoin has climbed more than ten times since Buffett's warning. Earlier this month, a friend from the university told me informally that, through drinks, he had invested tens of thousands of dollars in another cryptocurrency. He said he hoped it would be worth a day to buy a house.

When I saw the price of bitcoin fall to $ 9,500, I pushed to buy, challenging the wisdom of two financial titans and my wife. One hundred dollars, or 0.0101 bitcoins. (A few days later, I bought another $ 150). By the time we got to our hotel, my bet had already increased by 10%. A week later, it was (briefly) 100%. According to reports, my wife's opinion about me has decreased by the same amount.

What's happening?

It's an inverted frenzy, clear and simple.

Bitcoin cracked $ 1,000 on the first day of 2017 . For this week, it was up to $ 12,000, and then it really took off: the price exceeded $ 16,000 in some bags on Thursday, and $ 18,000 in at least one. Other cryptocurrencies have seen similar peaks, although they change for much less than bitcoin.

There is a long list of factors that people can point to in an attempt to explain this. Regulators have adopted a non-intervention approach to bitcoin in certain markets. Dozens of new hedge funds were launched this year to market cryptocurrencies such as Bitcoin. The Nasdaq and Chicago Mercantile Exchange plan allows investors to trade bitcoin futures, which may attract more professional investors.

Related: The Bitcoin rally is back on track: it just rose above $ 13,000

However, a key reason why the price of bitcoin is still rising is, well, because it keeps going up Small investors like yours really are afraid of losing the opportunity to get rich quickly. And when the value of your bitcoin doubles in a week, as it did for me, it's easy to think you're a genius. But it can get burned assuming it will continue firing.

Some investors have compared the bitcoin hype with the dotcom bubble. Others, like Dimon, have said that it is even "worse" than the Dutch tulip mania of 1600, considered one of the most famous bubbles.

As Buffett repeated in 2014, "the idea that [bitcoin] has great intrinsic value is just a joke in my opinion." Bitcoin is not backed by the profits of a company, nor by the strength of a government and the rule of law. There are no interests or dividends either.

Why would someone want or need to use bitcoin?

Bitcoin serves as a new type of currency for the digital age. It works across international borders and does not need to be backed by banks or governments.

Or at least that was the promise when it was created in 2009. The increase and volatility of bitcoin this year may be excellent for those who invested early, but undermine the viability of Bitcoin as currency.

At this time, I can use my holdings of bitcoins to pay for purchases at Overstock ( OSTBP ) or book a hotel at Expedia ( EXPE ) . But if I use Bitcoin to buy socks worth $ 25 on Overstock today, and the price of bitcoin quadruples next week, I'll feel like those socks really cost me $ 100. On the other hand, if Bitcoin is blocked, at least I'll always have socks.

Instead of a currency, Bitcoin is treated more like an asset, hoping to make big profits in the future.

  purchase of bitcoin

So, is there anything truly valuable about bitcoin?

Yes, the technology behind it.

Bitcoin is based on blockchain, a public ledger that contains all the transaction data of anyone who uses bitcoin. Transactions are added to "blocks" or the code links that make up the chain, and each transaction must be registered in a block.

Even Bitcoin critics such as Dimon have said they support the use of blockchain technology to track payments.

Is there a legal and legitimate way to invest in bitcoin?

Bitcoin exchanges have a broken history. Mt.Gox, once the largest exchange, closed in 2014 after losing hundreds of millions of dollars in bitcoins after a trick.

Today, Coinbase offers the leading market, a startup that has raised more than $ 200 million from several top-tier venture capital firms. Square ( SQ ) the payment service, also implements a bitcoin product.

There are also bitcoin ATMs in scattered wineries and convenience stores throughout the country, through companies such as Coinsource. ATMs allow you to exchange bitcoin for cash, or vice versa by scanning a QR code from the digital wallet application on your phone.

With Coinbase, you must first grant the application permission to connect to your bank account. As with other stock trading applications, you pay a small fee for each transaction, purchase and sale. But the transaction can take much longer.

My original purchase of $ 100 in bitcoins will not be officially completed in Coinbase until Friday, more than a week after the transaction. The price I bought remains the same, but I will not be able to sell it before Friday.

If the price plummets before then, I have no luck. No socks for me

– CNN's Selena Larson contributed to this report.

CNNMoney (New York) First published on December 7, 2017: 3:02 PM ET


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