Last month, I told you about how you hardly ever get something for nothing. Nevertheless, I received this email from Venmo in August 2021:

I’m curious like everyone else, so I nabbed the free opportunity to dip my pinkie toe in the digital currency waters.
I bought $5 of bitcoin. A couple weeks later, Venmo reimbursed me $4.50 (darn, I missed that 50 cent processing fee in the fine print).
Venmo has other cryptocurrency options – ethereum and litecoin – but bitcoin is the OG. And it’s grown like a weed. One year ago, bitcoin recorded a 12,000% value jump over the previous five years.
A simple example to illustrate its incredible ballooning. Back in 2010, a man bought two takeout pizzas for 10,000 bitcoins. Today, those bitcoins would be worth $169M.
I told my college daughter Pippa about my ‘investment’ and she was non-plussed: “It feels like crypto is designed to murder you in a back alley.” We laughed and I forgot about it.
Until I read about the UK guy who, in 2013, accidentally threw out his computer hard drive with the digital key to 8,000 bitcoins on it. Today’s value: $135M. He’s spent the ensuing years trying to convince his Wales township to let him sift through the local landfill looking for it. Hey Venmo, you holding that key for me or what?
Then, a year ago, bitcoin – and the other cryptos – started to drop in value. It’s plummeted 74% in a year. Last week’s collapse of the FTX trading firm was another sharp kick to the ribs, but crypto was already laying on the sidewalk.

Is crypto a bad investment? Not necessarily, but it is wildly unpredictable, and should therefore be a small part of your investment portfolio. Five dollars is extreme, but I wouldn’t exceed 5%. Tom Brady and Steph Curry and El Salvador can afford to lose millions of $$, but you and I can’t.
Bitcoin has no intrinsic value and is not backed by anything. Like gold, its value comes from its scarcity – bitcoin’s computer algorithm mandates a fixed cap of 21 million digital coins (19M+ have already been created). As with Reddit meme stocks, value is also influenced by a cult-like following on social media.
At least with stocks, you actually own something – a miniscule part of a company. And stocks as a whole also benefit from confidence based on a long history of positive returns. Since about 1800, stocks have consistently returned an average of 6.5 to 7.0% per year after inflation.
And that streak continues to the present day. Despite sharp declines this year, annual returns (including dividends) of the S&P 500 from 1996 to June 2022 were 6.8% in real terms.
Today, my $5 bitcoin investment looks like this:

Using the Warren Buffett buy-and-hold strategy, I’m hoping to get a nose above water sometime in 2023. But my retirement isn’t counting on it.