[edias]

From my brief observation of bitcoin this seems to be the defining characteristic for bitcoin, crashes followed by rebounds, pretty much since it was created, making me believe that most of bitcoin usage is speculation (is that already confirmed?).

Anyway, the question that keeps me from investing a dime into bitcoin is "What if it doesn't rebound?". If it really is being used as an investment vehicle and not a currency, than the answer to that, in my opinion, is eventually it will drop and continue to drop to the point where it's worth pennies on that dollar. With the boom and bust nature, I suspect many people will eventually just give up on it as a currency which would be close to a death sentence for bitcoin.

I am heavily biased towards index funds with the lowest fees so I'm rather pessimistic about bitcoin in general, just like I am about playing the stock market. It would be interesting to see what would happen if banks started to care about bitcoin. The market needs to grow many times over but I would expect them to be the only people making consistent money (and not even sometimes) just like they do on the stock market.

[ashray]

Not all bitcoin usage is speculation but you are right, most of it's current value is probably reflected through speculation.

Now there are two things that give bitcoin it's value:

1. Usage / Adoption

2. Speculation

Right now, China seems to have trouble speculating in bitcoin. There is no question of China ever having any usage in the near future given their government's stance on bitcoin.

Adoption of bitcoin has been on a steady rise over the past few months. No, apple or amazon are not yet accepting bitcoin but there are a growing number of people who are starting to see why they should accept it and why it's a viable payment method.

It's impossible to say what it's value should be based on current adoption. The value right now could be $1 or $1000.

My personal investment style is also biased towards low cost index funds.. I'm a Boglehead. However, Bitcoin is the only exception I have made so far. It's one of those rare moments that I personally see value in what the technology brings and can achieve.

I'm invested, more in terms of building tools/startups around bitcoin than in just buying and speculating, though I'm guilty of the latter too. It's even more fun because I truly believe in it's potential. (gambling by comparison, is less fun ;))

[jwesley]

Bitcoin is a much different investment than stock in established companies or national currencies. It is much similar to high risk / high reward investments in uncertain technology ventures, like angel and VC investing. What it also has in common with those types of investments is the potential for very high returns that make taking on a high level of risk completely justified.

This type of risk profile lends itself to volatility. We don't get to see this with startup investments because their stock is rarely traded, and when it is it is done privately. The public doesn't get to see stock fluctuations in high tech companies until after the IPO, at which point the companies are clearly established and much of the volatility has been eliminated.

[ihsw]

There faster, more efficient ways to cause your hair to turn gray and fall out than watching BTC's waxing and waning on an hourly basis.

Personally I suggest looking at the 52-week moving average -- it's a lot more comforting and a lot less stressful.

[drcode]

Bitcoin is undergoing a difficult price discovery process, and no one (even die hard bitcoiners like myself) will deny that the valuation is heavily driven by speculators.

Sticking with index funds is very, very smart... I doubt I'd even own any btc myself if I didn't buy some at a buck a piece back in 2011 (well, I also make some from my bitcoin business, but that isn't a speculative decision)

[xtc]

No matter what you invest in you always worry about the rebound or lack thereof. This is not exclusive only to Bitcoin.

If you're not keen on assessing a general idea of the risk involved then hedging on magical internet money futures is not for you.