Invest in Bitcoin has been getting a lot of media attention and while it made many people rich overnight, it also made people poor overnight too. The way it skyrocketed in 2017 made headlines and got many investors excited and ready to jump onto the bandwagon. But is Bitcoin and other cryptocurrencies worth putting money in? Although I prefer this blog to be focused on P2P investing, I’m going to share my investments and experiences in crypto and my personal views in this new exciting market. I’ll touch a bit about the definition of Bitcoin, but there are plenty of in-depth blogs and videos out there that do a better job of explaining all the details.
Since its inception in 2009, Bitcoin was the first digital asset to instill an entire ecosystem of cryptocurrencies. In the beginning, it grew an underground following, of developers and investors who seemed very interested in its future as a possible replacement to the physical monetary system, as traditional institutional players curiously watched its development. During this time we experienced numerous fluctuations, and in late 2017, we have seen an all-time high price of $20,000 per bitcoin followed by an 80% loss in mid-2019 to around $3500 per coin.
After witnessing the meteoric rise and a subsequent fall in its price value, many folks shied away from investing in cryptocurrencies. However, recent volatility up to $14,000 has caught the attention of many existing and would-be investors.
What is Bitcoin?
Bitcoin is a form of electronic cash. It is a decentralized digital currency powered by its users without any central bank, middle-man or single administrator in control. It can be sent from user to user on the peer-to-peer bitcoin blockchain network without the need for intermediaries. From a user perspective, Bitcoin is pretty much like cash for the Internet, meaning nobody can stop your transfer, hold your account or question your exchange. It is an algorithm powered through blockchain technology.
So is Bitcoin risky as an investment?
The short answer is Yes! Bitcoin is a high-risk investment and because it is a decentralized and non-correlated asset, its valuation fluctuates a lot and its price is based solely on demand and supply. High demand leads to higher prices, low demand results in low prices. Bitcoin is still a very small market, compared to other markets like gold. Gold sits at a market cap of $7.3 trillion, while Bitcoin is currently around $147.53 billion (as of Oct 24, 2019). For bitcoin’s price to stabilize, a large scale economy needs to develop with more businesses and users. So as of today, BTC is still in its infancy, although it is also the 8th strongest currency in the world.
Having said that it doesn’t mean that you shouldn’t invest in Bitcoin or other cryptocurrencies but you have to be aware of what you doing. As I always say in this blog, never invest in something you do not fully understand. So before you decide to put any money in crypto, understand the technology and the purpose of crypto. If you believe it has a place in this future then I’d say put a small amount of your savings and treat it as a high-risk investment so accept the fact that it as gone. It will be foolish to make any future financial planning on Bitcoin earnings.
I am currently invested in the top 3 cryptocurrencies by market cap, which are Bitcoin, Ethereum and XRP (Ripple) and you can follow on my portfolio page. The reason for this is because all 3 offer different solutions to current monetary issues. The first time I heard about Bitcoin was back in 2013, (BTC price was at $790) however, I have never fully understood it’s functionality and back then there was not so much information on the web about bitcoin, so I ignored it. I occasionally followed its price and back in early 2017, I have decided to put my first money into crypto, this was way before the hype and the huge bull run to $20k.
Why do I believe in Bitcoin?
Back in 2009, the world’s economy suffered a huge financial collapse and thanks to a few silly decisions by people in office, the economy collapsed. Prices rose sharply, people lost their jobs, the oil prices skyrocketed and the average joe suffered and had no backup plan except for buying gold. It was because of these bad decisions that Bitcoin was created.
Since then we have not yet experienced another recession, however, there have been talks already that time is ticking and another global recession is on the horizon. Luckily this time we have bitcoin as one of the options to move to if we start seeing no growth and falling prices and therefore big demand in bitcoin creates big prices.
Aside from a rumored upcoming recession, there is a lot of tension in this world. Political instability, social instability as well and looking at countries like Venezuela (Hyper-inflation), Honk Kong (2019 Protests), Lebanon (Corruption), Chile (Income Inequality) you can see the need for a decentralized asset. As we progress, we experience even more inequality in our societies, and we see that the system is not working for everyone. Wealth is transferred from the hardworking to the rich.
With regard to the hyperinflation in Venezuela, I came across this heartbreaking yet amazing story of how a guy in Venezuela paid in Bitcoin for the birth of his son.
What are my investment strategies in Bitcoin?
To start my first important rule is to not put more than 5% of my savings. Although I believe in the future of Bitcoin I still see it as a high-risk investment and therefore I don’t want to be carried away by any emotions or price hikes. I don’t believe the price will ever go to $0, but there is a chance that Bitcoin could be replaced by better technology or that large scale demand will never catch up and prices will slump.
One of the biggest mistakes I have done in the beginning is the shotgun approach which basically means putting a large chunk of money into crypto. So without knowing much about the market I’ve spread around €2000 into a bunch of different crypto coins. Due to volatility, I saw those €2000 change a lot second after second. Somedays I’m losing 10% somedays I’m gaining 10%. That created stress, it felt like gambling. I was monitoring prices all day, reading news and got sucked into it. The hype and bull-run arrived, and my portfolio tripled, however, I didn’t sell and time the market. So after that huge success, I saw my same portfolio slump and lose 30%. I still hold the same amount in crypto but when exchanged to Fiat currency I was losing.
This past year and a half, I’ve adopted the dollar-cost averaging (DCA) approach. This means that I invest fixed amounts into a given investment on a regular basis. I started putting in small amounts of money every week and take advantage of the volatility. I’ve set a budget of not more than €100 a month and I still monitor the price. When prices go up I stay away, but when prices slump I start buying amounts of €25 or €50 worth of BTC at different price points. This has allowed me to buy at different prices, and since I started at the bottom of 2017, I am in quite an ok profit. This DCA calculator goes back in time and measures how much money you’d be making with this method over time.
What are my future plans with Bitcoin?
As of today, it’s hard to say however, I would love to keep buying small amounts and hold 2 Bitcoins in my wallet. Depending on the future and economic situations, I’ll decide if I keep them or sell 1 Bitcoin and keep the other. If I had to choose my future I would sell 1 Bitcoin when prices reach €80,000 and put that money into P2P and from P2P returns I’ll be able to keep buying into bitcoin and dollar cost average.
On a final note remember that there is only a maximum of 21 Million Bitcoins and 7 Billion people on this planet. That makes it around 0.003BTC and $22.41 as of this point in time. Its all up to you but I am certainly willing to take a gamble and put aside a few hundred dollars into this new era. Let me know your thoughts in the comments section about Bitcoin, my strategies or your strategies.