He would settle in Missouri, farming on the Missouri River, until he contracted malaria. That would prompt a move even farther west, to Oregon, where the air was better. His stay in Oregon would be brief, as he moved south to work at Sutter's Fort in California.
John Sutter hired Marshall, who was a carpenter, to help build the sawmill at Sutter's Fort.
On January 24th, 1848, James Marshall discovered gold in the American River and kicked off the California Gold Rush.
In 1849, 90,000 people moved to California.
By 1855, it's estimated that over 300,000 had moved to the golden state.
I love reading about the Gold Rush because it's a common story that repeats itself. There's a discovery of riches and then people flock to it.
It's oft said that the only people who make money in those situations are the ones selling the pickaxes and the shovels.
It's because we don't talk about the thousands of people who died on their way to the gold rush. We don't talk about the financial catastrophes – folks who sold all their possessions to make their way out west but had to turn back as paupers. We also don't talk about the impact on Native Americans. Those stories don't sell newspapers.
But when I see stories of Bitcoin, I'm reminded of the dark side of the Gold Rush. It's just the latest chapter in speculative investments, maybe minus potential death.
You may have read in the news recently about Bitcoin's value reaching $11,000. I periodically get reader emails reminding me that it touched $11,000. And how they told me to get in when it was an eye-popping $3,000!
I'll tell you why I watch from the sidelines in fascination but will never join in.
I Don't Want Another Job
Trading Bitcoin is like day trading stocks. It's another job.
Did you want another job? If you want to make money, you have to do more than read mainstream news articles and open an account on Coinbase. You have to read industry publications, get in the trenches with folks who are intimately involved, and you have to study a lot.
Do you have the time for that? If yes, get after it. If not, do you really want to dabble? Because it's still the Wild West in there.
Do I Have An Edge?
Day trading anything is gambling. You are relying on whatever edge you can develop in your process to win out over time. Day traders and card counters have systems they believe have a positive expected value.
My friend Colin runs Blackjack Apprenticeship, a Blackjack card counting course, and the key to success is understanding the system and lots and lots of practice. He used to be on a card counting team, which is where you get the edge. There's a reason casinos will let you count cards but they will not let you play on a team – casinos aren't there to day trade.
Professionals have a level of sophistication that novices can't imagine. That's who you are up against.
People Steal Bitcoins
Your money is pretty safe. It's rare that someone breaks into your bank or brokerage account and steals your money (and you have no recourse).
Bitcoin has no owner. Bitcoins get stolen all the time.
In several years, after all these thefts, it will become secure. Right now, theft is far more common than traditional financial institutions.
Bitcoin Makes a Weak Store of Value
Gold is meant to be a store of value. If everything goes into the crapper, you could bring that gold, in theory, to another country with a stable government and get fiat currency to spend. This theory works well except you forget we live in the most powerful country in the world.
I can't see a world where the United States Government is gone but there's another stable government that will let me and my gold in. Or will care about gold.
Bullets are a better store of value than Bitcoin.
Don't Chase the Dragon
“Don't chase the dragon” is a phrase first used by addicts to talk about chasing the high. When I use it, I mean chasing the money. This is not a long-term strategy and so it's not sustainable. That's fine for a little bit of fun – but you will not build long-term wealth this way.
You will continually have to find the next hot commodity and hope you get it right more than you get it wrong.
What's better? Find the boring turtle (I'm talking about passive income investments!) that'll get you rich slowly.
I like time-tested, working, low effort wealth building
Slow and steady wins the race. Bitcoin is sexy, it's hot, and if you made a few bucks in it – fantastic!
But I want slow and steady. I want to contribute to my funds at Vanguard on a regular basis, rebalance every six months or so, and then move on. The stock market isn't infallible but it's also been around for many many years and it's very mature.
What Is Worth Studying About Bitcoin
Bitcoin is great! I'm so glad it's here for several reasons.
Study the fervor around Bitcoin because this happens all the time. Mainstream media craves news and the hottest financial news is Bitcoin and other blockchain technologies. This happened with the dot com boom, housing market, and so many other bubbles. Is Bitcoin a bubble? No idea, I don't care, but the news is covering it like it is.
Companies having their own initial coin offering (ICO) is fascinating. This is when a company offers their own cryptocurrency (coins), leveraging similar technologies, to raise money.
Blockchain and smart contracts is a great technological innovation. The best way to learn about it is this Tim Ferriss podcast with Nick Szabo. It's meaty but if you really want to understand it, it's explained quite well in that podcast interview.
Finally, watch how your friends and family react. I'm not saying sitting on the sidelines is the right way to react. I'm not saying selling everything you own and throwing it into a cryptocurrency is the wrong way to react. But studying how the people around you react will give you a sense of their temperament… and that's always useful. 🙂
What do you think about Bitcoin?
I care about Bitcoin, but not in the recent media hype. Back in June of 2011, I wrote an article asking if it was the future of money. (Unfortunately I didn’t buy any Bitcoins.) I thought it had potential because everything sounded great in theory. With more than 6 years of maturing, the general concept hasn’t changed. So I still think it could be the future of money. I don’t think it makes much sense to speculate on it or gamble on it going up and down like a daytrader. However, if there’s some safe way to buy $50 worth… Read more »
The technology hasn’t changed a significant amount but I think its application as matured, like companies using ICOs for fundraising. The tech supporting it (where to hold it, wallets, etc.) has gotten easier for the layperson (like me) to get involved too. Still not for me. 🙂
I have a small investment in bitcoin (and some bitcoin stocks) because I wanted to learn more about cryptocurrency and the whole purchasing process (it is complicated and a major hassle, and it’s expensive, no matter what anyone may claim.) I’ve limited my ownership to way less than one percent of my portfolio.
I believe that the company that figures out how to invest in and/or use cryptocurrencies in a simple seamless manner with very minimal cost with be the stock to invest in.
Jim – I don’t care about bitcoin either. I’m perplexed by the fact that people think it’s an investment that will make them rich. Why do they think this? There’s no cashflow or earnings behind it that would warrant value. I don’t get it but maybe I’m not cool 🙂 The WSJ had a pretty neat chart on the 12/1 edition that had different bubbles throughout history. The bitcoin bubble is by far the biggest one. Talk about parabolic! Now, I don’t think that it’s going to end bad for the overall economy. I just think that it’s a crazy… Read more »
I think they get caught up in the hype. It’s easy to get excited. It’s fun to get excited. You get that rush and people start talking about it … so you feel like it’s inevitable. but it’s usually not. 🙂
Bitcoin’s rise and volatility is tremendous. The fact that there’s no underlying asset to change hands makes the changes so fast too I think. There’s no anchor to anything tangible.
Bitcoin vs the stock market, what does it tell us about a lot of Americans? It tells us that a shockingly large percentage of Americans possess no meaningful financial competence. I see endless comments about how the stock market is in a bubble, and that it will collapse at any second. At the same time, too many Americans are throwing their money away on Bitcoin, which has no inherent value. This country desperately needs to add financial literacy education to the school system. Being financially successful is not that hard in this country. (I started my adult life with first… Read more »
You have raised a lot of good points here. Bitcoin’s inability to store value like gold is important for people to remember. I wish it was said more often. But while I’ve had some success with day trading, you are right in calling it “another job.” That is all it is at the end of the day. Nothing less.
And here we are….three years later…..and Bitcoin is almost at 60k. All of you who have been talking about “intrinsic value” are missing the point. There’s also no “intrinsic value” in a dollar bill, an ounce of gold, or a share of stock ownership in a company. Dollars are just green paper, gold is just a soft metal with almost no practical use, and for retail investors, stock doesn’t actually buy you a part of a company. The aforementioned things only have value because we collectively believe that they do. We buy them with a specific fiat currency in the… Read more »