There is no way to value Bitcoin or other cryptocurrencies (since there are no cash flows from it) so we are in the realm of uncertainty, not risk. Gambling has known odds (more or less, depending on what you are betting on) and a negative expected return (house gets a cut). Investing has estimable odds (again, more or less) with a positive expected return for bearing risk. Bitcoin has no assessable odds at all, just guesses (and hype and wishes). That’s not to say it won’t skyrocket (sometimes gambles pay off), there’s just no way to know or even estimate any odds or values.
Interestingly, there is still no significant use case for it still (blockchain technology, perhaps; cryptocurrencies, not really) which I find telling given the enthusiasm and efforts to do so. It’s like tulips (1636-1637) or Beanie Babies (late 1990’s) – you are betting that someone else later will pay more for it despite the intrinsic value being roughly zero, aka the greater fool theory. There are a lot of fools out there so a buyer might make money. It’s essentially a pyramid scheme (without the cash flows) – as long as the pool of buyers increases it works. There are a lot of people who don’t own it yet, so it could go on, but there are a lot of people who don’t own most things in the world and that doesn’t automatically make them good investments.
The supply of dollars increases at about 3% per year. Bitcoin at about 1.8%. So there is a little scarcity difference, but not a material one. Cash is enormously more useful. Yet you don’t see people suggesting that squirreling away $100 bills in your sock drawer is a good way to get rich. The objection to that argument would be that there is fear that central bankers could debase the dollar. That’s fair, but the supply of Confederate dollars has been fixed for about 150 years and it isn’t skyrocketing in value despite having historical value and few people owning them. The global gold supply also increases at roughly the same rate as dollars or bitcoin (precise numbers are harder to get), and it’s useful (jewelry, electronics, dentistry, etc.), yet the expected return is the inflation rate.
Buying a little bit (very little) to avoid FOMO, indulge YOLO, or whatever is fine, but realize that it’s much closer to gambling than investing. It’s also interesting to me that we only get questions about it when it has hit a new high, never at the lows. People are mostly just buying the momentum rather than anything fundamental – because there isn’t anything fundamental. Again, there are no cash flows to value, ever.
I did a somewhat related blog post about five years ago comparing gambling, investing, and insurance. You can find that here if you are interested.