Bitcoin. This currency has captured headlines with its meteoric rise and plummet and the Mt.Gox bankruptcy that left hundreds of millions of dollars of this virtual currency missing. Exchanges and custodians seem to be in turmoil and bitcoin seems to be clouded in nonstop controversy. Just this week a CEO of a bitcoin exchange was found dead in Singapore. The intrigue related to bitcoin just seems to grow.
Bizuayehu Tesfaye | Bloomberg | Getty Images
Commuters walk past Liberty Teller's Bitcoin automated teller machine at South Station in Boston, Feb. 25, 2014.
It's very tempting to consider bitcoin investments when you hear about the rise in value of this currency for those that were early adopters. And certainly when an asset craters from a value of over $1,000 to a mere fraction of that price, many ponder if it might be a wise investment to capture the price decline on the hope of future appreciation.
(Read more: 'Real' bitcoin creator: 'I am not Dorian Nakamoto')
But stop for a moment and imagine an investment with the following characteristics and see if your interest still remains. Imagine an asset that:
- Was developed anonymously
- Is not regulated
- Is only several years old
- Requires unheard of trust in custodians and exchanges
- Has been the currency of choice for illicit activities
- Has fluctuated massively in a matter of months
- Major exchanges have ceased to exist because of fraud
Sound like a wise investment? Did you know that in order to buy bitcoins that you may need to wire "real money" to an offshore account in Bulgaria? Feeling assured now?
Bitcoin might be a reasonable trade but don't for a second think it's a prudent investment. It's pure speculation and, like all speculation, can pay off handsomely if you're on the right side of the trade. Then again, so is 28 black on a roulette wheel.
(Read more: Japan to regulate and tax bitcoin trades: Nikkei)
With its recent bounce in price, some might be considering buying the selloff. The temptation always exists when an asset reaches a high price and pulls back. But of course if one stops for a moment and reflects on the dot-com crisis, Webvan and Pets.com seemed like sure bets, too! Both of these names had major financial backers and they still imploded. Billions of dollars were lost despite being touted by their proponents as the wave of the future.
Yes, bitcoin has its benefits including the ability to transact business privately without financial intermediaries (no fees). But given its current state, at this point it is a first draft on a virtual currency.
(Read more: How to make money from bitcoin)
Japan is pushing forward a proposal to regulate bitcoins. There are private firms drafting proposals that would provide insurance to compensate investors if a Mt.Gox-type scenario results in capital losses. These first steps are in response to the shocking headlines tarnishing this nascent currency.
(Read more: Disappearing bitcoins? There's insurance for that)
As much as the libertarians despise regulation, these efforts (and others that may subsequently appear) will comfort nervous investors. Transparency and protections make a difference for most people. And that's the point at which it might make sense for investors to invest, rather than speculate, on this virtual asset.
—By Michael A. Yoshikami
Michael A. Yoshikami is the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor.
