One Bitcoin is currently trading north $8,000 as of writing. The total market capitalization of all cryptocurrencies is over $240 billion.
Bitcoin (BTC) is up over $2,000 since last month alone.
Since 2013 BTC has gone up, up, up thousands of percentage points.
Cryptocurrencies like Bitcoin have made millionaires. An entire industry that didn’t exist ten years ago has a market capitalization of hundreds of billions.
Much of the focus of this website is in alternative investments. I think the stock market is overvalued and a lot of the financial products peddled by wall street are bad deals, at least for customer. The alternative investment du jour is without a doubt cryptocurrencies more specifically Bitcoin, which as of writing is trading northwards of $8,200.
Are you afraid of missing out on the cryptocurrency craze? There a couple ways to squelch this fear.
I’m not quite this excited about Bitcoin and Cryptocurrencies and I think it’s important to be informed
Option A: Don’t Own Any Cryptocurrencies
You don’t need to own any cryptocurrencies. You don’t need to own one Iota (that is a cryptocurrency) of Bitcoin, Litcoin or Lisk. If you don’t want to learn more about them, or speculate on them that is your choice. It’s a valid choice and it might even be a great choice.
But I’ve decided to make a different choice.
As I’ve said before I’m personally skeptical of cryptocurrencies as a long term store of value. I also think there are superior alternatives.
But the market has continued to grow and a lot of people think it is the next big thing. They compare it to the “dot com” boom that took place earlier in the century (there was also quite a bust if I remember correctly). I was skeptical of Bitcoin when it was $1,000 and $4,000 and I’m skeptical of it now that it’s over $8,000.
Option B: Take a Measured Approach
Bitcoin could continue to climb to the moon or it could go to zero. It could also do both.
Being on the sidelines and watching cryptocurrencies climb higher and higher is difficult. People like to buy things as they are going up. But buying out of fear of missing out is a horrible idea that will in all likelihood results in bad decisions and losses.
In my most reasonable mind, I believe that Bitcoin will not be the future of cryptocurrencies. I think it’s unlikely to go to zero but I think it will drop precipitously. I don’t think cryptocurrency technology is going away, but I think some other, better cryptocurrency technology will eventually supplant Bitcoin.
The nature of digital technology is that it becomes obsolete and is replaced by newer, better technology.
I don’t know the future. That is just my opinion and my best, most reasoned judgement of the technology and the facts as I understand them. I know I could be wrong.
So I own some cryptocurrency so that I’m not on the sidelines and I am benefiting from the rise in price. But I only own what I can afford to lose.
Is Bitcoin the Google or the Next HotBot.com?
Is Bitcoin the next Google or Apple? Or is Bitcoin the next hotbot.com or pets.com?
If you’ve never heard of hotbot.com that is exactly my point.
Is Bitcoin the next Facebook, or is it the next MySpace?
I don’t know.
I do think that from a technology perspective there are many other coins and cryptocurrencies that I think are superior to Bitcoin. I know that when I’ve tried to use Bitcoin as a medium of exchange it stinks. It’s expensive, especially when the network is busy, and it takes a minimum of 10 minutes, and usually 20-30 minutes.
There are other cryptocurrencies that are faster, more anonymous and more secure.
Bitcoin is lousy for payments and attempts to make it better have thus far not come to fruition.
Maybe it will be better for payments in the future. Or maybe, as some people argue, Bitcoin doesn’t need to be used to day to day payments, that it can just be a “store of value” like gold that doesn’t change hands very often.
I can’t foresee the future but I do see benefits in cryptocurrency technology. But at the same time this technology is, in my opinion, very difficult to value.
Is BTC expensive or cheap at $8,000? I don’t know. It seems expensive to me, but I’ve been wrong (or early) for years.
Will Bitcoin’s robust network, name recognition and first mover advantage allow it to maintain it’s dominance? I don’t know.
Fortunately I don’t need to know.
As I said before, no one needs to own cryptocurrencies. It’s a personal choice. But I don’t want to sit on the sidelines in case cryptocurrencies are the “next internet” or “next radio”.
So what are some details of this option?
How not to Fear Missing Out on the Cryptocurrency Craze: A Strategy
Part 1: Only buy what you can Afford to Lose
Cryptocurrencies are highly speculative and highly volatile. That is why I think it is very important to only purchase an amount of cryptocurrency you can afford to lose.
For example, I bought about .5 BTC on Coinbase at $7,000 before the Bitcoin segwit2x fork (which didn’t happen). I intended only to hold it through the segwit2x fork. I then watched as BTC fell to $6,000, representing a $500 loss. But because I had only bought what I could afford to lose I was able to hold through that dip, and when Bitcoin rallied back to mid $7,000 I was able to reduce my position at a profit.
If I had bought more than I could afford to lose, it would have been harder not to panic and sell to cut my losses.
Part 2: Diversify
If cryptocurrencies become mainstream and go up another gazillion percent, you won’t need to own that much of any one to make a handsome profit. There are over a thousand cryptocurrencies with a market capitalization over $244 billion. Of that $244 billion Bitcoin accounts for the lion’s share, at $140 billion and the top ten account for nearly $220 billion, or about 90%.
Some are going to go to zero and disappear, others might stagnate, and still others might continue to go up in value and over the next 20-30 years and represent a great speculation.
Some cryptocurrencies like “1337” (see https://en.wikipedia.org/wiki/Leet), MiloCoin, or the cryptocurrencies named after an English-language obscenities, are in my opinion not worth owning at all.
By owning a handful of the more promising cryptocurrencies, one increases the likelihood of owning one that really takes off.
Part 3: Goals and Discipline
If I had kept all the Bitcoins I bought several years ago, and sold them today, I would have made somewhere around $45,000. If I had kept holding them who knows how much they would be worth in the future. Instead, I’ve bought and sold Bitcoins and other cryptocurrencies over the years and probably made a few thousand instead (I’d have to check my tax returns to know for sure).
Throughout that time I’ve held some cryptocurrency and it has steadily gone up. One of my mains goals with cryptocurrency was not not lose money and I’ve succeeded thus far in that goal.
Is your goal with cryptocurrencies to try to pick the top? Is it to double your money and get out? Is it to buy and hold until Bitcoin goes to $100,000?
Because cryptocurrencies are so volatile right now I think it’s good to have a goal and then exercise the discipline to follow it. Decisions made based on emotion tend not to consistently work out.
No thanks, but I am interested in buying some Bitcoins on Coinbase.
8 November 2017 Update: The fork that was supposed to happen has been called off. It was decided there was not enough support.
Bitcoin is likely forking again as a result of new code known as Segwit2x. Forks are negative for a cryptocurrency from a store of value perspective because they are essentially inflationary. However, this could present an opportunity similar to when Bitcoin forked to create Bitcoin Cash (BCH).
In theory, if a cryptocurrency hard forks it should reduce the value of one currency by the amount gained by the other. So if the market cap of Bitcoin is $6,000, it forks, and the new crypto is $500 the “original” BTC should be worth $5,500 all else given. This is similar to how dividends work with companies, where the value of the share is automatically reduced by the amount of the dividend. Now there are two cryptocurrencies instead of one, which compete for market share.
However, one of the last times Bitcoin had a significant fork, the advent of Bitcoin Cash, both Bitcoin and Bitcoin Cash went up. I think this is illogical, but the market will do what the market will do.
I’m skeptical of Bitcoin in particular and cryptocurrencies in general. However, I’m willing to try to profit from them provided I only use money I can afford to lose. People who bought into bitcoin when it was trading for a few dollars have made a fortune with BTC trading upwards of $7,000. A new hard fork is scheduled to happen on November 16 called Bitcoin2x (B2X). It is another attempt to address some of Bitcoin’s shortcomings.
Bitcoin Cash and Bitcoin Gold are some of the recent Bitcoin Forks
This fork is somewhat unique because it might not be a fork at all, at least practically speaking, because everyone might switch over to this new Segwit2x code.
But this could an opportunity to get some “free” coins–albeit not without significant risk. Simply buy some BTC on coinbase and then transfer them to your account on GDAX (run by the same folks who run Coinbase). GDAX has already indicated they will credit accounts with BTC with an equal amount of B2X.
So, if you were to have 1 BTC, after the fork you would then have 1 BTC and 1 B2X. It is my opinion that B2X will probably not be worth as much as the BTC, but will still be valued and it is “free” money.
Some of the Risks with Segwit2x
There is certainly a lot of risk with cryptocurrencies and they increase during hard forks. Here are the possible scenarios:
1) Bitcoin forks, there is now BTC and B2x.
2) Bitcoin does not fork, B2X is not adopted
3) B2X is adopted, and everyone switches over to it
I don’t have an opinion on Segwit2x as a technology at this time. In either of the three scenarios the desired outcome (as far as my strategy goes) is for the overall value of the BTC and or B2X to be higher than it is now.
However, it is possible that the fork does not go well and in the ensuing chaos both the price of Bitcoin and any forked coin goes down, or bitcoin goes down, or the new coin goes down.
So it’s certainly not a strategy for widows and orphans. But I think it is worth considering. I took this approach when BTC forked to create Bitcoin Cash (BCH) and it worked out for me.
It’s important to make sure you have BTC in GDAX or another location where you will be able to take advantage of the fork and that your BTC is there by the 14th or 15th (fork will likely happen at some point on the 16th).
As always I’m not recommending any particular course of action or strategy. You need to make up your own mind.
If you already own bitcoin, you might consider ensuring that they are held in an exchange that will support B2X, so that you get this “dividend” as some are calling it. If you don’t have any Bitcoin and would like to buy some, you can do so AND at the same time support this site. Simply buy $100 or more of BTC using this Coinbase referral link. If you do we’ll both get $10 worth of BTC. Not bad.
The Bitcoin Segwit2x is risky, but recently it seems like all news is good news for Bitcoin and despite large setbacks Bitcoin continues to rally higher.
The United States is steadily becoming a worse place for individuals to do business.
The financial services industry in particular faces onerous regulations imposed by the US government–under the auspices of security and combating terrorism.
While the efficacy of the US regulators’ draconian standards in preventing money laundering and terrorism is debatable–the impact on law abiding consumers is certain.
US consumers and investors alike are the victims of the US government’s attempt to control.
A recent example is that US citizens will no longer be allowed to have accounts on Bitfinex. Bitfinex announced earlier this month they would be dropping U.S. accounts and list the following reasons:While we have been able to normalize banking for some corporate customers and individuals in certain jurisdictions, compliant banking solutions for U.S. individuals remain elusive. We have been slowly and selectively inviting users in particular jurisdictions who meet set criteria to start using banking channels that have come online. This process is ongoing.A surprisingly small percentage of our revenues come from verified U.S. individual accounts while a dramatically outsized portion of our resources goes into servicing the needs of U.S. individuals, including support, legal and regulatory.We anticipate the regulatory landscape to become even more challenging in the future.
Bitfinex is not based in the United States. Exchanges based in the U.S. are better positioned to properly service retail U.S. customers.
1) It’s difficult to comply with US banking regulations
2) It’s expensive to comply with US banking regulations
3) Bitfinex expects regulations to become more challenging (probably meaning more expensive and more difficult) in the future
If the United States wants to remain competitive in the future and the new economy regulators need to back off.
Margin funding on Bitfinex is one of the methods I use to grow and protect my wealth. Very soon this will no longer be an option.
Bitcoin is going to undergo a hard fork.
What is a Hard Fork Anyway?
A hard fork in cryptocurrencies is when one cryptocurrency effectively becomes two and the number of units of currency is effectively doubled, albeit existing in two separate, incompatible blockchains. This has already happened to the second largest cryptocurrency by market capitalization: Ethereum.
Ethereum underwent a hard fork back in 2016, so there are now two blockchains, Ethereum and Ethereum classic, which both trace their origins back to the 30 July 2015 launch of Ethereum in a modern day Ship of Theseus paradox.
More information about hard forks.
Hard Forks are Logically Bad for the Price of a Cryptocurrency
As I’ve written about in the past in What I Dislike About Cryptocurrencies cryptocurrencies, like Bitcoin, aren’t scarce.
More correctly, cryptocurrencies are not very limited in supply.
There are currently 16,475,250 BTC in circulation and that number will continue to grow by design until 21 million are mined, at which point the supply of BTC will cease to grow.
So while only 21 million Bitcoins will ever exist on a given Bitcoin blockchain because of how the cryptocurrency is programmed, if Bitcoin forks, there will eventually be 21 million units of Bitcoin A and 21 million units of Bitcoin B.
In one sense the number of Bitcoins that will exist is 42 million. Now certain places might only accept Bitcoin A and not accept Bitcoin B and the price of Bitcoin B could drop to a low value and no one uses it. So in that sense there are still only 21 million Bitcoins. But when a cryptocurrency hard forks, some people favor one fork over the other and the price is lower than it otherwise would be if there was only one blockchain.
If Ethereum had not forked there would only be around 93 million ETH in existence right now. But because Ethereum did hard fork there are now 93 million ETH and 93 million ETC. The market capitalization of ETH is currently around $18.3 billion and the Market cap of ETC is around $1.3 billion. It’s beyond the scope of this article to posit how much the hard fork impacted the price of ETH, but I think it is logical to believe that the price of ETH would be higher if not for the hard fork.
Bitcoin Hard Forks
On August 1st Bitcoin is also going to fork, forming two separate and incompatible blockchains: Bitcoin (BTC) and Bitcoin Cash (BCH).
The market does not seem to care and Bitcoin is trading near all time highs around $2,800.
Time will tell what kind of impact this will have on the network and the price of the cryptocurrencies. If the hard fork does not go well and the network is adversely impacted I could see short term price drops. It’s possible (although I would guess unlikely) that Bitcoin Cash becomes more popular than Bitcoin and overtakes it in price. It’s also possible (and in my opinion much more likely) that it becomes a somewhat niche cryptocurrency like Ethereum Classic.
Bitcoin currently has a market capitalization of $46,622,650,965. It’s certain that after the fork both Bitcoin Cash and Bitcoin will not both have a $46.6 billion market capitalization.
While we wait and see what unfolds I’ve taken one important step. I had my modest BTC holdings at Coinbase. Coinbase is NOT supporting the hard fork.
So I’ve moved my BTC to Kraken. Kraken IS supporting the hard fork. By moving my BTC to an exchange that does support the fork I will get Bitcoin Cash in addition to Bitcoin.
The reason for this is because if one were to hold one BTC (Kraken uses the abbreviation XBT) at Kraken during the hard fork, Kraken will award the holder of that BTC one BTC as well as one BCH. Whereas if BTC is held at Coinbase no BCH will be credited.
I like Coinbase and I plan to move my BTC back to Coinbase after the hard fork takes place.
If you don’t currently own any Bitcoins and are interested in purchasing some, check out my easy to use walkthrough guide How to buy Bitcoins on Coinbase. Using my affiliate link when buying Bitcoins on Coinbase to get $10 worth of bitcoins free when you buy at least $100 worth of Bitcoin.
I think the vast majority of my readers get it. I think my readers are smart, critical thinkers. However, I’ve gotten a few comments from people who somehow think that because ETH is now trading upwards of $300 that somehow my article Ethereum Cloud Mining is Not Profitable is no longer valid.
I’ll make myself clear. It does not matter how high ETH goes, Ethereum cloud mining was not profitable for me.
Did I make more money as a result of Ethereum cloud mining compared to simply holding onto the $561? Yes. But the fact remains that the Ethereum cloud mining contract was a slow, expensive way to acquire ETH.
Owning ETH was profitable. I made money on the appreciation in dollar value of ETH. I would have made more money if I had bought ETH directly, versus Ethereum cloud mining.
I wrote this very clearly three months after I purchased the Ethereum Cloud Mining contract from Hashflare.io:
I would also be better off if I had just bought ETH.
If I bought $561 of ETH for $9 (where it was trading when I started mining). I would have 62 ETH…
Through Ethereum cloud mining I mined 41.27 ETH.
I would rather have 62 ETH immediately than wait a year to get 41.27 ETH. The cloud mining contract increased my cost basis.
Now, if I could buy hashing power at a low enough cost Ethereum cloud mining could have been profitable. If mining difficulty went down over time, Ethereum cloud mining would be more likely to be profitable. However, mining difficulty has consistently gone up and the cost of cloud mining contracts is too high.
Ethereum cloud mining was not a good investment for me. I would have been better off simply buying ETH directly. This is true regardless of how high the price of ETH goes.