In March of 2014, I bought my first Bitcoin. $618.
Can you guess why? The chart should be a clue. It was just a few months prior when it actually did something I found notable. It began attracting more and more interest, rising in price as more and more dollars began chasing fewer and fewer Bitcoin. Ah, there’s a market, now. There’s bid, ask, and the spread. Well, of course, there always was these things, but now it looked real and active. The price got bid up until the point where holders became sellers.
I began reading white papers on “digital cash” back in the early 1990s. Back then, it was all theory. I understood it conceptually, especially its features—foremost of which was its decentralized nature. It’s not “run” by anyone, especially not a central bank or any governmental body. All the king’s horses and all the king’s men have no more control or influence over cryptocurrency than any individual anywhere…which is exactly none. The only thing that has any influence is its market and the individual actions of the traders participating in the market. Buy, sell, or trade.
All the State could really do is outlaw its use, which of course always works so well… It can no more eradicate cryptocurrency than it could eradicate marijuana, poppy, or coca plants.
In its most basic nature, a cryptocurrency is an open, public ledger that can’t be hacked, controlled, forged, or changed in any way. Once a block is written (every 10 minutes in Bitcoin) it’s a permanent record forever and the chain of blocks (“blockchain”) ensures each individual block’s absolute integrity since they’re all “wired” together and each individual block since day 1 is integral to the entire chain up to and including the last block written within the last 10-minutes, 24/7/365.
…I just held onto my Bitcoin, no intention to do anything with it. I never checked the price and had only the barest awareness that it was trading below my purchase price for most of the next two years. $500 appears to have been a big psychological barrier. It just didn’t want to stay above it for very long. Perhaps it was all the people who got in on Bitcoin for pennies or less. One guy bought 5,000 coins in 2009 for $27 (about a half cent each). That was worth $5 million when Bitcoin broke $1,000 for the first time in late 2013.
That was probably a critical price point for a whole lot of folk who got in early, then literally sitting on hundreds of thousands and millions for something many just did on a lark, out of curiosity, or even on a dare. At the time, Bitcoin was almost the only game in town and the upstarts weren’t going anywhere because Bitcoin itself was still unproven. For all anyone knew, once those early adopters began selling their coin for thousands and millions, it would return to its lowly state and that would be the end of it. So, I suspect that part of the reason for the lackluster market for three years was lots and lots of people wanting to take their miraculous, lottery-like profits.
One additional data point to check is trading volume.
Yep, the highest trading volume for Bitcoin ever was right after it broke $1,000 for the first time. You can safely bet that a great deal of it was plain old rational, mega-profit taking.
A few days back, Bitcoin hit $5,000 for the first time, representing an 830% gain from my own original purchase price only 3 1/2 years ago. OK, so now I’m a believer. And I’ve put that belief into action by learning everything I can about the cryptocurrency markets, with a leg up. I used to be an options trader: some stocks and futures, but mostly short-term options on derivative instruments like the SPX.
It’s been a whirlwind of discovery. First, you have to find sources of information who aren’t morons. Check. Some of the guys I’m following have been in the investment research and trading game for decades and I’ve been aware of them since the early 90s. Second, you have to find the right tools. Check. This is one of the most daunting things for someone just jumping into crypto. It’s not like just opening an account with Fidelity or TD Ameritrade and point, click, confirm. There’s a number of moving parts. Third, you have to stay rational. Check.
There are now something like 830 cryptocurrencies. The vast majority are crap. Some are outright scams (you need to make sure the source code has been examined by responsible parties). Some, like Etherium and Litecoin, have pretty much proven themselves. There are a few others trading for pennies or a few dollars that meet certain criteria for making a grub stake in them, like $20, $50, maybe $100…basically the cost of a dinner out.
Over the last several days I’ve taken micro stakes in seven additional cryptocurrencies besides Bitcoin. The volatility is crazy. My portfolio is up 21.2%. No, not since the beginning of the year. No, not since the beginning of the quarter. Nope, not even since last week or even since I entered the positions over the last few days. No, none of those: since this morning. Sure, there’s going to be days where the exact opposite holds true, but we’re going to be looking for the big breakouts.
Stay tuned for my next post in a few days about my offer to show everyone how to do this and to do it rationally, patiently, and for very little money. Anyone and everyone has the financial wherewithal to participate and to do so only risking the equivalent of pocket change.
In the meantime, consider this: there are over 1.2 million Bitcoin addresses where the value of the held Bitcoin is greater than $1,000. There’s 340,000 addresses worth in excess of $10,000.
Update 2: Cryptocurrency and the Nature of Modern Money
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Looking forward to the follow-up. I bought a small fraction of a bitcoin a couple of years ago as an experiment (was a convoluted process) and as of today I’m 900% up, not enough to retire on though!
“you have to find the right tools. Check. This is one of the most daunting things for someone just jumping into crypto. It’s not like just opening an account with Fidelity or TD Ameritrade and point, click, confirm. There’s a number of moving parts.”
Richard: Do you have any recommendations for places to open accounts / wallets /etc. Or any tutorials on that topic which have been particularly helpful?
Sorry: Just reread the post and the last paragraph. Looking forward to the next post!
hi richard — I’m a newby to bitcoins — have been looking very hard after the aug.1 fork. Another fork for bitcoin core coming nov.7. Scary stuff right now till things settle. Certainly wish I’d gotten in years ago, but now things could disappear into the ether. Bitcoin cash — viable or not? — being mined and propped up by North Korea? or go with bitcoin and hope it survives segwit2. Look forward to your next insights.
Yes! Bitcoins are the anchor cryptocurrency now, its value will go up and down still, but not as before.
You will even be able to pay your Uber with bitcoins soonTM, which completely legitimizes it in the real world.
The altcurrencies are for the truly speculative. Litecoins could easily double, triple or even go ten times up in worth.
Interestingly, I bought some 2 days ago (both bit- and litecoins). After a day I was at -10%, now I’m at +10%.
Ethers, litecoins, Dash, Monero, all high-risk high-reward.
Yeah I minted my first bitcoin in 2014. I did invest the wrong way, bought a miner instead of buying bitcoins.
I bought about 6.23 of them at about $130 a few years back. Unfortunately, I kept them at MtGox and am still waiting for the outcome of the bankruptcy proceedings to see what I’ll end up with.
Meanwhile, I have gotten back into buying small amounts recently and thought the actual profits are trvial percentage-wise they’re looking good.
Yep, you need to regularly move non-trivial amounts to your own wallet (I’m not aware of wallets that hold everything yet…Jaxx can hold Bit, Ether, LC and a few others) . Also, check regularly to make sure the app is still being supported. I had my original purchase in an app called Hive and they stopped supporting it while I wasn’t looking and I had to jump through some hoops…but straightforward.
For the ultimate security, you keep your wallet on a USB stick or even on paper, in your own home safe bolted to the floor or embedded in concrete. And don’t tell anyone but trusted family and your estate attorney.
Before Richard posts again, the number one rule is that if you don’t own your private key, then you don’t own your Bitcoin.
If you buy on an exchange, then you do not have the private key.
Yes, but you can transfer to any number of wallet types, even offline completely, a paper wallet.
I’ll eventually cover all of that.
Excited to see you cover crypto, from a non BS, high trust POV that you’ve created (and earned) over the years. I’m kicking myself for dismissing bitcoin back in 2011 or so when I heard about, viewing it as just privacy oriented geeks, understanding nothing about ‘sound money’ and the implications.
Husband and I have been buying BTC for 3 years now, and recently started trading in and out of alts. It is the wild wild west out there, and we are having a great time learning and following news together. Our portfolio is up 100% .
So….is this basically currency speculation in a novel currency which has a very limited track record?
Leaving aside the possibility of personally making a big score by timely purchases in a highly speculative market, do digital currencies have any real prospect of going big time?
Your thoughts on this critique: https://www.washingtonpost.com/news/wonk/wp/2013/04/12/bitcoin-is-ludicrous-but-it-tells-us-something-important-about-the-nature-of-money/?utm_term=.5199e599c39e
I always love it when someone puts their best foot forward.
How about I don’t give a fuck what an Anon thinks if I don’t want to?
And incidentally, I read the piece. I note two things.
1. The guy hasn’t written a piece on Bitcoin since 2013 I can find.
2. He’s conventional economics, which means he’s just a regurgitator, not a fundamental thinker. Note his confusion over deflation. What does everyone think tech is? It’s deflationary. That’s it’s value.
Check out Civic Tokens and Steem. You should consider putting your blogs onto Steemit. I think the future of blockchain is in smart contracts and other types of disintermediation. There’s even a blockchain video service similar to YouTube but with no censorship issues (central controls) which uses Steem protocol.
Yep, I have a bit of Steem and will be adding Steem Power. Good idea about putting some blog posts up there.
Yes… I read Steemit for diet, exercise, and crypto currency articles. Good writers, such as yourself, are making some good coin there too.
Alright Blain, I’m up at Steemit.
I’d be very interested to hear your thoughts on any/all of the following;
–BTC versus ETH.
–How to best take advantage of the current ICO/Token craze which is surely in a Bubble.
–Your predictions for BTC price.
–What you did, if anything, with the recent Bitcoin Cash fork.
–What to think when things like DOGECOIN, a self proclaimed joke, currently holding a market cap of $216,836,515.
–Do you think we are witnessing the evaporation of store of value from fiat into cryptocurrency?
–What should Bitcoin have done regarding it’s current strategy of prioritising store of value / digital gold / settlement layer, over transactional currency?
Oh, missed the BTC –> BCH fork question. I don’t see how it hurts anything. By copying the whole blockchain and not just the application code, everyone holding BTC in their own wallets got equivalent BCH and all they need to do is create a BCH wallet and import their BTC data. Those who had their money sitting in an exchange, well, probably in most cases the exchanges are the beneficiaries of the BCH, which I think kinda sucks…they should figure out some way to get the BCH coin to people who had BTC sitting with them (I had about a 3rd of a BTC sitting in Coinbase at the time).
….Well, looks like that’s going to happen, in time.
– Well, Bitcoin is a blockchain cryptocurrency app and that’s all it is. Etherium is a blockchain platform with the trading of Ether being just one of many potential applications.
– That’s what I’m working on. At its base, you want to do two primary things 1) separate the garbage from the potential as best as possible. Do some research, and 2) be rational. Make relatively small bets. So, perhaps 20% of your entire portfolio is speculative. Half of that is crypto and half your crypto holdings are perhaps Bitcoin, Ehtherium, and Litecoin and the other half is spread amongst the various altcoins
– No idea and I don’t think anyone else does either. I heard the other day that Kim Dotcom thinks BTC could go to $100K. But who knows. Basically, everything that happens in Bitcoin is unprecedented because it’s never happened before.
– Haven’t looked at Degecoin and have no holdings. But, yea, it’s weird. Some people have set up ICOs as complete explicit jokes and still raise funds…. Don’t know.
– No, or too soon to tell. Fiat is going to be around for a long time to come. Without being able to artificially inflate it with increased money supply (which is actually loose lending and too-low interest rates) it becomes viable as a store of value in itself, like gold. OTOH, I don’t see it supplanting fiat until such time as some form of standard fractional-reserve-like banking services are worked out. I have long maintained that there is nothing inherently wrong, fraudulent, or underhanded with creating new money based on extending credit to worthy debtors (rather than having to mine it).
– I think their focus was correct. Yea, it sucks that it’s not like swiping your credit card. But, neither is it easy to pay for something in gold. I see no regret or cause for concern here. It’s easy enough to go in and out of BTC and $$$ fast enough. In fact, using a debit card, you can buy BTC instantly on Coinbase. Getting BTC from there to an exchange to buy alts takes about 15-20 min tops. All my trades have been instantaneous except the 500 Potcoin I bought that hadn’t filled by the time I went to bed but was in the account the next morning. So, basically, I think it will be fine to have BTC basically be like digital gold and when you need transactional speed, then you make provisions ahead of time for what you’ll need.
On the Dogecoin thing…… yep, it’s basically a joke, but it does have a bit of a use, and mascot is, as the kids say on The Facebook, “Totes Adorbs!” That’s not completely irrelevant….. at a time (and maybe still to this day), the vast majority of stockholders of Disney held a single share. Cause it was a novelty for kids. No other company’s stock is like that, and it’s a huge benefit for Disney.
Further, consider that fact the Venezuelan Bolivar is worth less than World of Warcraft virtual gold – http://www.foxbusiness.com/markets/2017/08/01/venezuelas-cash-less-valuable-than-world-warcraft-virtual-gold-report.html
It’s a good observation.
People invest irrationally for rational reasons.
There is movie on Netflix called “Banking on Bitcoin” that explains the history of Bitcoin and how it came up from the cypherpunk movement. Thought it was well done and recommend it. I bought a few Bitcoin and Ether earlier in the year and am trying to learn as much as I can about altcoins. I just bought a hardware wallet yesterday (Ledger Blue). It is on backorder until October 31, as the company can’t make them fast enough.
Looking forward to your articles on this space.
Hey Richard – glad to see you talking about crypto!
I bought my first 8 BTC at $124 just before the big run up, and like Guy above, I stored them in a shady Russian exchange (Vircurex) and they got stolen. About $40k worth in today’s prices…
Anyway, I’ve built info websites for a living for the past 12+ years and started building a site called coinclarity.com about 8 months ago that I recently launched that aims to clear up the crazily vast number of options around cryptocurrencies. We actually have 1082 coins listed currently (and there’s more I need to add). Anyone in the comments looking for places to buy or store their coins might want to check out Coin Clarity.
I find myself mildly amused by your response, so thank you for that.
As for my posting anonymously: Since your site is in kind of a seedy neighborhood, being run by a guy with kind of a slimy reputation, I’d rather not be seen posting here in a public way. Hence, my straightforward portrayal of myself as anonymous. I suppose I could have pretended to be a real person. Would that make you feel better about yourself?
I had no expectation that you would care anything about what I think. Since I don’t know that much about Bitcoin and Cryptocurrency, I wasn’t planning on offering an opinion anyway.
I did have some curiosity about the phenomenon, so I did bother to post three questions to you, thinking I might learn something. Learn I did, though I won’t bother to share what I think I’ve learned, simply because I already know that you don’t care.
I expect you will not want to engage further, and will just send this to oblivion. That is OK with me. I’ve already had the satisfaction of poking the bear once, and eliciting a growl….
Regarding price potential of BTC, yeah I’ve seen some crazy numbers. As you say…no one knows of course.
That being said, curious of your thoughts on this: https://thesaifhouse.wordpress.com/2017/05/19/economics-of-bitcoin-as-a-settlement-network/
If the above theory holds any weight, then a very high BTC price (even north of 500k) would make sense due to the amount of value being transmitted.
BTC Price vs My Thoughts
$1 – stupid privacy geeks
$100 – crazy
$1000 – really crazy
$4000 – hmmm interesting
$5000 – shit I better buy
Damn fine article Mark. I agree with the whole thing. This is one reason I try not to do any BTC transactions less than $100. And even that’s pushing it with transaction costs. Basically, I’m on a 1-way street:
$$$ –> BTC / ETH / LTC –> Bittrex (50% of new BTC to buy altcoins)
The other 50% of BTC and 100% of ETH and LTC got to my Jaxx Wallet to hold. The altcoins are staying at Bittrex for the moment. I hate the idea of having a bunch of wallets.
Cool, thanks for checking out the article Richard (if you sign up for the guys mailing list (which I haven’t been spammed yet at all, he’ll send you a PDF preview of his upcoming book on history of money and leading up to bitcoin…for someone like me it has been very educational). I’ll have to check out Bittrex. And yeah, seems like storing crypto is a hassle enough and multiple wallets, keeping track etc sounds rife for issues.
I frankly do not know shit about the mechanisms of dealing with BC….but I have done some research on the subject and recently listened to the Tim Ferriss interview with NIck Szabo (a blockchain and cryptocurrency guru). I am generally skeptical of a any scheme that is touted as foolproof . If it’s man made…it’s presumably man broken….but many experts have weighed in the blockchain distributed concept.
I will not invest in any of these currencies, perhaps never. It’s too volatile and I don’t have the nuts or the time for it. However, I like the idea of non governmental currencies and plenty of people will be early adopters, enough perhaps to inject a teeny weeny smidgeon of honest and faith in the fiat and floating currency system. What I would expect is that strong currencies would get stronger and the weak…..weaker, but potentially more volatile and conducive for trader speculation. Precious metals, oft demeaned as old man’s money and dinosaur……will still be around and valuable in a volatile currency environment.
Some folks have tried to create a sanctioned/regulated exchange for BC trading. I can’t ever see that happening, or at least not soon… Why would any government that is heavily debt financed do that?
Nor would the Swiss or the Singaporeans want to jeopardize their huge money handling business .
While this indeed may not be worth your time, the post I just put up delves into the why it might be rational to have some stake, a comfortable, speculative one. In a nutshell, the potential gain is just too asymmetrical to ignore.
Opportunities like that don’t come along often.
Plus, it’s fun if you’re not sweating bullets over potentially losing a big steak. Even the few in this comment threat don’t seem overly wrought about the thefts they’ve been victims of. Tuition. Plus, it’s pretty sure that for most people, their losses were mostly unrealized gains.
I will definitely read.
Thanks for pep talk.
I believe in asymmetrical or taleb type barbell propositions. Not absolutely sure this applies to the risks and payoffs in the crypto currency game.
Started dollar cost averaging in to BTC just over a year ago. Always hungry for information or a new perspective so I’m looking forward to this new series!
Are you doing auto-buys, or buying on the dips?
I’ve been dollar cost averaging since it’s first run up when it broke $1k… Just a weekly auto-buy has been an extremely good decision.
OK, Step #2:
I think I was the first person to sign up
Excited to learn and apply
Excellent! Very much looking forward to this. Thanks to some of you’re old articles, I’m in on a few of the cryptos as well. I was kicking myself for not getting in earlier, but I started in June (with a long term view).
Most of my holdings are in Litecoin, and a fair amount in Etherium. The really cool thing, based on how Litecoin has gone up relative to the dollar, is that my holdings in Litecoin alone are worth more than the TOTAL number of dollars I’ve put into ALL of the cryptos. So if the other 5 or 6 tokens and cryptos go to zero tomorrow (very, very unlikely), I’d still be flush if Litecoin holds. That is a very cool feeling.
It’s funny, I saw in the comments on Zero Hedge on some article, the predictable “Tulipmania!” and “Gold is the only real money!” claim. And below one of those, a very sensible commenter, who said “Every day, I sell off a tiny bit of my Bitcoin. I send some to the mortgage, some to buy gold, and some to my stock portfolio. Been doing this for months. If Bitcoin goes to zero tomorrow, I will still have made a huge profit.”
I put some money into one of the tokens when it was trading around 16 cents, seeing as I liked the concept it represented. Some news came out about that company, and it jumped up to $2.40! But then it crashed down to $1.02, so it’s currently “only” worth 5x my original fiat investment….. over the course of a month. Just devastating, right?
So how can we capitalize on today’s dip? I ask as a total newbie.
Well, step one would be to get started on curing your newbie status.
Specific to your question, there are basically two sound ways to buy into cryptos (or any securities, for that matter), assuming you are buying to hold and amass (which you should be…leave the day trading to the institutions).
1. Dollar cost average, which is simply setting up an auto buy (you can use Coinbase) for some X number of dollars each month. Then, you don’t worry about dips and rallies. You just buy periodically and it averages out.
2. Take that same amount allocated for auto-buy but instead of doing it automatically, you set it aside and then buy whatever your balance is on corrections. Given the volatility, corrections greater than 20% are damn common. Play it by ear, but generally, you should be good pulling the trigger each time you get a correction of 20% or more. Be patient. a 20% could turn into a 50%….
Update 2: https://freetheanimal.com/2017/09/cryptocurrency-nature-modern.html
“Cryptocurrency and the Nature of Modern Money”
I’m in, thanks. Looking forward to it.
Sorry, I smell tulip bulb mania.
Not sorry. I don’t smell, I see a fucktard so pathetic in ignorance and insight that not only can he not make a meaningful distinction, he must resort to ancient irrationalism.
It’s difficult to describe how fucktarded you are (feel free to make a good argument against crypto), and there is nothing I hate more than people like you on my blog.
I just hate it that there can be people so fucking stupid on my own platform.