Everyone is going wild as Bitcoin (BTC) approaches $10,000. Some people are calling it a fraud, others a bubble, and tons are jumping in to grab some. So is this an opportunity of a lifetime or a waste of money? Only time will tell, but let’s be as informed as possible.
When I first heard of BTC it was the beginning 2013 and I thought I should get some, it was around $50 and by the time I was able to buy some it was at $100. The process was tedious involving going to the store for money orders and sending through some processors I’d never heard of, but it worked out. It was still the wild west and new coins were being made left and right like Dogecoin and Feathercoin. I noticed that there were price differences among exchanges and wanted to set up an arbitrage business, but it was so difficult to transfer cash between exchanges and transferring BTC took 10 minutes which was enough for the volatile currency to change in the interim.
Back then there wasn’t much you could buy with BTC, some may say the same is true today. Overstock.com began accepting BTC and I decided to cash out $435 for a projector. That amount of BTC would have been worth over $10,000 today.
What is it?
A cryptocurrency or digital currency is digital money that is backed my nothing. The US Dollar is backed by the US government so it has value because there is trust that the government will pay its bills and keep functioning. Meanwhile, something like BTC only has value because people think it does. It is similar to gold in that regard. The mechanism of how they are created, transferred, and tracked is a bit complicated, so if interest here is Wikipedia.
I tried to cash out the rest from Mt. Gox but after weeks they still hadn’t given me money, so I asked to cancel the transaction and transferred my BTC out and sold it on Craigslist. It would have been cool if I had held onto the BTC, but I likely would have kept it in the Mt. Gox which got hacked and I’d never have seen it again.
If you are going to have cryptocurrencies then you need to be careful where you store it. You can store it on your computer, but then there is the risk of your computer dying and all your money with it. You can store it offline on paper but then you don’t want to lose that either. You can trust a company to store it for you, but they are a big target for hackers. Personally, I use Coinbase because it is big and easy to use. I just checked and apparently they are insured against a breach and only keep 2% of their BTC online.
Fast forward to 2017
I heard about Ethereum and thought it would be a good currency, so I bought 5 for $50. After the price tripled I sold it. I ended up buying 5 for $1500 later on and that is what I currently have. I think of BTC and ETH as having some value, but not the price they are trading at. I keep some because I don’t want to regret if in a few years the price goes up 10 times. But remember, I’m a terrible investor.
Initial Coin Offerings
Now ICOs are all the rage. These are essentially presales for a new thing. For example, there is Filecoin, you can use the currency to store files and if you store on your system get paid in them. However, I think these ICOs have gone overboard and they are raising millions in days. Tezos raised over $200 million in four days and is now in a lawsuit. I’d stay away from ICOs. If we are speculating let’s jump on the old school bandwagon with BTC.
There is a ton of hype around digital currencies and regulations haven’t kept up with them. Only invest what you are willing to lose because it is not unlikely that the bubble will burst. There is no way to get rich quick, but people love the idea and that drives them to crazy bets like the lottery and cryptocurrencies. Some will win, others will lose. Keep up the savings and you will have a clearer path to wealth.