The Motley Fool

Is Bitcoin just a big April Fool joke?

Every time I read about Bitcoin, and listen to those hyping its investment potential and telling us it’s even better than tulip bulbs, I can’t help wondering if someone’s having a laugh.

I mean, why would the price suddenly jump on 2 April, from around $4,000 the previous day, and then hover around the $5,000 level for the rest of the week?

The big surge actually took place over a period of only about an hour, and there surely must be a reason. Mustn’t there? When something like that happens with a company stock, it’s almost certainly a result of some upbeat news. But of Bitcoin there was none. Or was there?

No, really?

One suggestion is that the rally was sparked by an April Fool joke. According to the prank, the rational investing world had finally seen the light, and the US Securities and Exchange Commission had decided to approve the launch of Bitcoin-based exchange traded funds (ETFs). Not just one, mind, but two. This was serious stuff. Bitcoin was finally getting the recognition it deserved.

The 1 April story claimed that the Bitcoin price soared on the result to over $6,000, adding billions to the total value of the stuff. Of course, that wasn’t true, but the almost perfect echo the very next day did seem a little spooky.

The question of what actually did drive the rally has been puzzling traders all week, with various speculative reasons being touted. Some even suggested it might be down to Brexit, as people exchanged their pounds for Bitcoin. But Brexit is nothing new, and dollars (or even euros) would seem a more sensible haven to me.

It’s deserved!

The suggestion I like most comes from Bitcoin enthusiasts themselves – it’s just, well, because!

It’s certainly not down to the April Fool story. Oh no, Bitcoin investors wouldn’t fall for anything like that because they’re all far too rational. The fact that some of them are sitting on massive losses after buying at $19,000 in the belief that it would soon reach $100,000 does not detract from that theory at all!

No, Bitcoin surged on Tuesday simply because it deserved to. It’s obviously a brilliant investment, as any look at the goat’s entrails — sorry, the price chart — will clearly show you. Why are those weirdos who insist on putting their money into actual companies that make actual profits even wasting their time asking?

Clueless

The bottom line is that nobody knows why the pretend money suddenly spiked by 20%. No idea at all. And that illustrates the problem.

If there’s no way to tell why the price of something moves when it does, no way to predict what kinds of events might move its value up or down in the future, and no way to justify today’s price (other than “look at the chart“), then it’s simply not a rational investment.

I’ll buy Bitcoin when Warren Buffett does.

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.