I’m kind of a sucker. I bought Bitcoin last week and I managed to get my purchase in just before it went down.
Look at this chart. I bought at the gold circle. I couldn’t have timed it much worse. Bitcoin is down from $67,390 when I bought to $64,181 right now, a loss of 5 per cent. Ugh.
There have been 349 days so far this year and people who bought Bitcoin on 343 of those days are richer than they started. If you bought Bitcoin in January you are probably buying yourself a Mercedes for Christmas. Not me. As mentioned, I’m kind of a sucker.
But it’s not over yet. I’m going to cling onto my bitcoin for a little bit longer and see if they go up again. Why? Because one other time that worked for me.
Crypto
The history of me buying cryptocurrency is full of false starts and embarrassing failures, interspersed with a single purchase that netted me kind of a lot of money (maybe not a lot for you, but for me). That was in 2020. I put $15,000 into Bitcoin in May and pulled out $45,000 in early January 2021.
It was extremely exciting to sell and pocket the money. But of course I immediately had seller’s regret.
Because after I sold it went up more. So much more. I tripled my money but I could have six-folded it if I had just been a bit more patient.
The next chart shows what I did. I bought in in 2019, rode a wave, and sold out again five months later, making a minor gain (I had only a fraction of a coin). Then I bought back in higher than I sold out for (this is proving to be a pattern).
What happened next? I sold too early. After I sold Bitcoin went way up. I felt sick. Of course, in late 2022 there was a brief period where I felt relief, because Bitcoin was below what I sold it for back in 2021. I didn’t buy then. However, now I’m buying in again. After it has gone up.
Crypto
The chart above is a slight simplification. Several of the buys were spread over a few days, and so were the sales. I’ve averaged them. I also bought and sold Ethereum at the same time I bought and sold Bitcoin. And in 2019 I diversified into some other altcoins, making losses.
I’ve paid $653 in trading fees. I said I was a sucker.
This is the big mistake individual traders make when they “play” the stockmarket: trading way too much. It is actually the big advantage that professionals have. Professionals can’t beat the index, on average, but individuals can easily lose to the index by stuffing around buying and selling, and incurring way too many fees.
Patience is the key to investing and I don’t have it. I don’t “hold”. Still, you have to be in it to win it so I’m buying in again.
Is it too late to ask what Bitcoin actually is?
Good question. The thing is, computer code is really easy to copy, so it shouldn’t be possible to make a transaction using computer code as payment. But bitcoin is a system that lets you make a transaction using computer code as payment. It makes sure each bit of code is used once and when it’s spent it is spent.
If you’re thinking, um my online bank account is kind of like that isn’t it? You’re right. The only difference is Bitcoin updates itself without needing to have a trusted banker in charge of tracking who has what cash. Bitcoin has no employees, the system operates based on code (plus incentives that make people contribute to the cryptography by paying them in bitcoin. This aspect is called “mining”). To my mind having no employees is not a killer advantage, but to some kinds of people not having to trust a banker is very important.
If you’re also thinking, but does anyone really use Bitcoin to buy things? Not many people do. It was designed and intended as a currency. But it turned into an asset. It’s more like gold than cash. It has value but it’s not often used for spending.
And if you’re thinking, but at least gold is useful? I have to agree again. I’m not here to defend Bitcoin really. I’m interested in it opportunistically, not as a true believer.
In my view the long run usefulness of bitcoin is probably zero. Does that mean its value will be zero? Probably… but not necessarily! Its value seems to depend on its value. When it’s going up, people want to pay to buy it, in the hope it’ll go up more.
The very long run includes a possibility where bitcoin is pure pointless trinket, solely just a souvenir of a time when the internet was a simpler place, and it’s nevertheless worth a fortune. I’m not betting on that, my guess is it will go up a bit now and crash later. But it’s possible!
Certainly in the medium run, before its practical value is proven null, there’s the chance of big bursts of enthusiasm for Bitcoin pushing its price up. We’ve seen a couple of these already in the past. I’m betting we could be at the start of another. Although as disclosed my track record is mixed.
Is the Bitcoin game rigged?
Big time. If you’re playing crypto and you think the market is not rigged, you’re crazy. All sorts of practices are allowed that aren’t legal in stock markets. The concentration of crypto is extreme. A handful of accounts own most Bitcoin. The big miners and the others have a massive interest in manipulating the market. But they have an interest in pushing it up, mainly.
Are there any logical reasons to get in to Bitcoin market?
It’s a risky bet. But the logical reason I tell myself I bought Bitcoin is to get in on a couple of factors pushing up demand and a factor reducing supply.
Demand Factor One is the prospect of an exchange-traded fund being set up in bitcoin in 2024. If you could buy it on the stockmarket like all the other stocks, that creates new demand for Bitcoin and also lends it legitimacy.
Demand Factor Two is the ageing of the population. Young people are more open to cryptocurrency than old people and as people age they control more wealth. If the nerds who were 100 per cent into Bitcoin in 2012 are 10 per cent into Bitcoin in 2032 but the normal people who were 0 per cent invested in Bitcoin in 2012 are 0.1 per cent invested in Bitcoin in 2032, that’s a lot of money trying to get into Bitcoin.
Supply Factor One is the halving. New Bitcoins come from mining (which is the reward people get for helping do the cryptography that makes Bitcoin work). Every four years the system halves the mining reward. This has happened before in 2012, 2016, and 2020. At the moment 936 Bitcoins are dispersed to the miners each day (some of which they sell to recoup their sky-high electricity costs). After April 2024 the number dispersed each day will fall to 468. Supply of new Bitcoins shrinks and we get closer to the day where all the bitcoins are mined already. There will be 21 million in total, ever, and around 19 million are already mined.
The price looks high at A$63,000 but it is impossible to say what a fair price is. A lot of Bitcoin actually never trade and are possibly lost to their owners. Liquid supply is not high.
Bitcoin is scarce. Lots of people don’t own bitcoin and only a few do. In a rush of demand, prices can spike. We’ve seen it several times before. Suckers like me are out there, experiencing FOMO and looking for the chance to buy, even if they buy high. Anything can happen from here.
