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Editor's Note: Michael Terpin is the co-founder of BitAngels, an angel network for digital currency startups. He is also CEO of Transform, one of the leading PR firms for digital currency and other emerging technologies.

In the past four years, no asset class has done as well as Bitcoin – and it's not even close. Since the beginning of 2010 to the end of 2013, it literally had a return of one million times capital invested, growing from 1,000 Bitcoins to the dollar to 1,000 dollars for a single Bitcoin.

Naturally, this trajectory has been anything but a straight line, with a sharp boom-bust cycle in 2011 (skyrocketing from $1 to $30 very quickly, followed by a slow, steady decline back to $1) and two smaller roller coaster rides in the past 18 months (from $13 to $266 then back to $50 in early 2013, then the most recent run-up from $100 to $1100 in less than 90 days this past winter, followed by a series of sharp drops down to its latest cyclical nadir at $380 a little over a month ago).

Today, the price has stabilized (for now) and has been trading in a more relatively narrow range of $550 to $620 for the past few weeks. Most of the price crashes had nothing to do with the adoption or usefulness of bitcoin, but of regulatory uncertainty and/or technological problems with a private company in Japan, Mt. Gox, which for many years was its largest exchange.

Just as the bankruptcy of Lehman Brothers and bailouts of AIG and Citibank sent shockwaves through the U.S. economy but did not collapse the dollar, so too did Mt. Gox's incompetence in dealing with growth, technical and legal issues eventually lead to that company's demise, but not bitcoin's. Today, dozens of better run Bitcoin exchanges, most with professional management and millions in venture backing, are highly unlikely to repeat the same mistakes.

Bitcoin represents a fundamental change not only in the financial world, but in technology. The underlying algorithms that allow Bitcoins to be created but not duplicated, as well as to have a permanent, undisputable record of each transaction, is called the blockchain. This technological breakthrough has been hailed by many of our nation's top venture capitalists as more important than the currency itself.

But the question at hand is about the investment prospects for this exciting, yet volatile, commodity that has also been used as a currency.

In the U.S., as in most countries, it is perfectly legal for anyone to buy and spend Bitcoins, as well as accept them as payment for services, which private companies like BitPay and GoCoin will then process into cash, if desired. In March, the IRS categorized Bitcoins as property, so they receive similar treatment as investing in or being compensated by a home, car or baseball card collection. On the positive side, this means that if one holds onto Bitcoin and the value grows, one benefits from capital gains treatment (which would not be the case if it was classified as a foreign currency). On the negative side, every time one spends bitcoin, a profit and loss occurs and must be accounted for on tax returns, down to a cup of coffee.

Fortunately, most wallets, exchanges and payment processing systems record the price of Bitcoin at the time of every transaction, so it's a matter of running software to aggregate these numbers, just as though you were funding your lifestyle by selling a little Facebook stock every day. This hassle hasn't kept major merchants such as Expedia and Overstock.com from accepting Bitcoins, nor has it kept Bitcoin users from spending some of their (generally appreciated) Bitcoins there.

So what gives me the right to discuss this topic? My background has been as a entrepreneur, marketer and angel investor. (I started and sold Marketwire, as well as my first PR firm, The Terpin Group. Almost exactly a year ago, I co-founded BitAngels with tech entrepreneur David Johnston, and it has since grown to more than 500 members in 30 cities. In March, we created the first structured venture capital firm to specialize in "Bitcoin 2.0" digital properties (also known as "smart properties"). I'm also producing CoinAgenda, the first high-end conference catering solely to Bitcoin and cryptocurrency investors, to be held at the Palms in Las Vegas, August 20-22.

As a primer, here are the methods of investing in the Bitcoin/cryptocurrency market, as well as my personal opinion on the risks and opportunities:

1) Buy and Hold Bitcoin. This has been the way to quick riches for anyone who bought in prior to 2013 (and still quite good returns for any who bought in at any time other than the current historic peak in the winter of 2013/14). Note that the history of Bitcoin has been one of long periods of stability, followed by rapid run-ups and somewhat slower, but steady, declines until the new normal is found (generally at a point well above the former normal). There is a chart popular in the bitcoin community tracking the growth of Bitcoin and noting that its average price for the year (typically registered during the summer) has grown at 1,000%t per year since 2010.

There are several ways to buy Bitcoin: (a) buy directly at market rates from an exchange or broker – there are currently no fully compliant exchanges in the U.S., so most volume goes through brokers who then buy coins from offshore exchanges like Bitstamp and Kraken; these exchanges include CoinBase, which connects with a user's U.S. bank account via an ACH transaction, and ExpressCoin, which does not use ACH; (b) buy person-to-person through Local Bitcoins (sort of a Craigslist of bitcoin buyers and sellers) or your local Satoshi Square (nights where members of local bitcoin groups get together and buy and sell bitcoins); (c) use a Bitcoin ATM – these are new and every state regulates them differently, but you can now find them in major cities from New York to Los Angeles. Check out the daily prices on media outlets like CoinDesk and mobile apps including ZeroBlock and BlockStreet. If you're not using CoinBase, which also has the default option of storing your Bitcoins, you're going to need a wallet. The largest player is Blockchain.info, with more than 1.7 million users, but new entrants adding new technology are entering the market monthly, including BitGo, Electrum, KnC Wallet, KryptoKit and Mycelium.

2)Actively Trade Bitcoins (or Invest in an Instrument That Does it for You). On the horizon, there's a new wave of hedge funds, family offices, institutions and financial instruments (most notably, a pending wave of Bitcoin ETF products) that would allow ordinary non-accredited investors to buy a product that tracks Bitcoins without having to go through the learning process of buying and storing any Bitcoins themselves (similarly to the way GLD allows investors to "buy gold" without owning coins or bars). Some of these products will trade actively; others will simply track the daily prices. There are also a new wave of trading tools for Bitcoin day traders bubbling on the horizon. All of these will involve buying bitcoins, which in general will drive the price up.

3) Mine Bitcoins. This has actually been the way that the wealthiest people in cryptocurrency got that way. In the first two years of Bitcoin, five million of the 21 million bitcoins that would ever exist were "mined" – and since the brilliant algorithm that bitcoin is based on makes it harder to mine the more people are mining, the first five million were a piece of cake to mine for anyone with an old PC and the knowledge that this was a good thing to do, despite the value at the time of Bitcoins being fractions of a penny. Alas, today, it's not so easy to mine Bitcoins. Today's miners require sophisticated, special purpose equipment built around chips that are specially programmed to do nothing but mine Bitcoin. These devices can cost upwards of $10,000 and can become relatively obsolete within a few months. The future is rapidly moving toward cloud mining, where instead of buying and running your own power-intensive computing machines, you buy fractional shares (like you'd buy fractional disk space on Dropbox or Amazon) of mining capability. There are half a dozen mining companies that have done fabulously well providing these picks and shovels, none more so than Sweden's KnCMiner (who I advise and is a client). There are several good blogs on mining bitcoins, as well as altcoins, which have yet to reach the level of complexity of bitcoins. Dogecoin is particularly easy to mine with an old PC and has become wildly popular with new crypto enthusiasts, including children.

4)Altcoins. Altcoins are simply digital currency built as a "fork" to the open source Bitcoin blockchain software. The most prominent of these is Litecoin, created by former Google employee (and current Coinbase executive) Charlie Lee. The price of Litecoin actually outperformed Bitcoin during 2013, albeit on lower volume. Do you think Vegas is fun? You can start speculating in altcoins by taking a single bitcoin (or less) and trading it for altcoins. Today, one bitcoin buys more than one million dogecoin, 72,500 ripple, or 46 litecoin. Beware of what are known as "pump and dump" coins – like microcap stocks, there have been dozens of coins with minimal added technological value that a group of promoters got behind, drove up the price, then sold and abandoned.

5)Invest in Companies and Bitcoin 2.0. The question seasoned bitcoin investors ask when approached about investing in a bitcoin company is simple: can I make more in this company than I can just leaving the funds in Bitcoin? For most of its history, the answer has been no (unless you had the Midas touch, like early investor and entrepreneur Roger Ver, who invested in the angel rounds of both Bitcoin payment processor BitPay and Blockchain.info). BitPay recently closed a $30 million investment by top-tier VCs including Index Ventures on a $160 million valuation, and Blockchain.info is widely considered to be one of most valuable companies in the Bitcoin ecosphere, despite operating completely in cryptocurrency (they don't even have a bank account).

In summary, digital currency is a new and volatile asset class, and Bitcoin 2.0 is even newer and potentially as disruptive and volatile. Even in these early days (the total market cap today of all digital currencies, including Bitcoin, and smart properties is still less than $8 billion – less than half of what Facebook paid for the text messaging app company, WhatsApp), it has the potential to disrupt large sectors of the financial, banking, e-commerce and securities markets in ways that could create wealth across its various components in excess of $1 trillion dollars.

Given current market dynamics, that would equate to numerous altcoins and smart property systems the size of where Bitcoin is today, and a potential price-per-Bitcoin of more than $50,000 (more than 80x its current value). Like most investments, it needs to be studied closely and watched over, but despite the (increasingly unlikely) prospect of it going to zero, the upside makes it an important portfolio driver in the high-risk portion of a balanced portfolio for those who are savvy enough to take on the learning curve.

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