Of course, the Bitcoin economy may grow rapidly in the next few years, and perhaps investors have bought Bitcoins in anticipation of that future growth. But even if they’re right, there’s likely to be limited upside. Usage of Bitcoin probably needs to grow rapidly just to justify the current valuation. If its growth fails to match speculators’ high expectations, the currency’s value is likely to fall even as the “real” Bitcoin economy continues to grow.

Conclusion. With all that said, I think there’s a good chance that Bitcoins will continue to appreciate. I still have the majority of the Bitcoins I bought in early 2012 and I plan to hold onto them for a while to see what happens. But anyone thinking about investing should understand that it’s an extremely risky proposition. There’s a good chance you’ll lose most or all of your money. And with each Bitcoin selling for $120, there isn’t nearly as much potential upside as there was a year ago, when you could snap up a Bitcoin for $5. So please, only invest money you can afford to lose.

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