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The wild swings in the value of Bitcoin and other cryptocurrencies lately should reinforce the idea that they are not sound long-term investments—and that investors should only buy as much as they can afford to lose.
If this sounds overly cautious, consider the recent insights of someone who you might otherwise assume is a true believer in cryptocurrencies: Vitalik Buterin, the co-founder of the cryptocurrency Ethereum. Over the weekend, Buterin sent out a Tweet reminding everyone that "cryptocurrencies are still a new and hyper-volatile asset class."
Bitcoin, Ethereum, Ripple, and other cryptocurrencies "could drop to near-zero at any time," Buterin said. Therefore, "Don't put in more money than you can afford to lose. If you're trying to figure out where to store your life savings, traditional assets are still your safest bet."
Over the past 12 months, the value of Bitcoin has skyrocketed from $1,000 to nearly $20,000, before plunging below $6,000 in early 2018. Cryptocurrencies like Litecoin, Ripple, and Ethereum dipped more than 25% in a single day recently.
Essentially, Buterin's message urging caution isn't all that different from those issued by cryptocurrency skeptics such as Yale economist Robert Shiller, who has frequently spoken about how unpredictable the cryptocurrency markets are. Cryptocurrencies such as Bitcoin “might totally collapse and be forgotten and I think that’s a good likely outcome" Shiller said on CNBC earlier this year. "But it could linger on for a good long time, it could be here in 100 years," he added.
As for a prudent strategy to investing in cryptocurrencies, Buterin's approach is similar to that of Mark Cuban, the billionaire star of Shark Tank and owner of the NBA's Dallas Mavericks.
“It’s still very much a gamble,” Cuban told Money last December, when asked specifically about Bitcoin. “It could go to $15,000 or zero and maybe both on the same day.”
Like Buterin, Cuban said that Bitcoin and other cryptocurrencies are very risky—and that no one should gambling their life savings on them. “If it’s money you need to depend on and can’t afford to lose, don’t do it,” Cuban said. “If you have money you can gamble with, then it’s worth taking a shot.”