“My general rule is, if you can’t understand it, don’t invest in it,” Dunston said, adding that he’s been researching Bitcoin for months, and said he still doesn’t fully understand the system.
People tend to make more money, he said, when they know the patterns and history of their investments. It’s now accepted that mutual funds and exchange-traded funds (ETFs) will fluctuate. Market corrections are unavoidable, if unpleasant.
Cryptocurrency, on the other hand, is young and hasn’t yet settled into any predictable behaviors. For example, Bitcoin lost 20 percent of its value this month after the Chinese government shut down a major cryptocurrency exchange and banned companies from raising money with digital currency. That comes only weeks after a monster rally took its price to near $5000.
Cryptocurrencies generally operate free from most government regulations, and no one person or company makes all the rules. Even the person credited with creating Bitcoin in 2009, Satoshi Nakamoto, doesn’t control it.
For the most part, buyers and sellers of digital coins can remain anonymous, explaining why the currency is often used by hackers.
All of this freedom comes at a price: cryptocurrencies carry a connotation of danger — not a word most people want associated with their money.
“Just know part of the demand is being driven by criminals,” Dunston said. Yet if you can’t resist investing in it, Dunston said, make sure you risk only “fun money.”
“You could hit it big or you could lose it all,” he said. Bitcoin was trading for around $600 a year ago and is now going for over $3,000 a coin. The chart below shows the currency’s value over the last year.