Should I buy Bitcoin?
(Last checked and edited May 2023. Edits are labelled.)
It’s June 2022, and the Bitcoin price is at or near the bottom of a bear market phase. When will Bitcoin shoot up in price again? I’m not sure: but between now and, say, 2035, Bitcoin is set to increase in price massively, possibly to over $500,000.
This is simply a matter of extrapolating from the rapidly increasing numbers of those buying and holding Bitcoin. Also, more — and bigger — users are buying Bitcoin over time. This includes most of the big banks — Morgan Stanley, Barclays, JP Morgan Chase, etc. It’s certain that, once decent regulation is in place (possibly during 2023 in the USA?), the money invested in this space will multiply by 10 and then, not long after, 100.
Edit May 2023: Regulation is now less likely in USA, where the Federal (central) government has taken against crypto, though certain states are very pro-crypto. This stance of the central US authorities is currently slowing down regulation and adoption. However, Texas, Wyoming, Floria, Miami City, Montana and others are all making “pro” noises. The UK and EU are streaking ahead of the USA in the regulation stakes. The EU has passed a crypto law whose acronym is “MiCA”. These regulations have been hailed by those I respect as “a good start”. And the UK has promised to press ahead with crypto regulation: after all, the UK wants the crypto industry to come to their shores and set up shop — along with any other high tech (potentially rapidly growing) industries.
Banks like making profits: and they are early adopters. Give them the regulation they want, and they will be all over it. That will raise the Bitcoin price massively.
Bitcoin is a Network
The reason Bitcoin is relatively predictable — compared to stocks and shares — is because it is a network. Being a network, its behaviour is subject to the network effect, which applies to the adoption of any new technology. The network effect is also known as Metcalfe’s Law:
Metcalfe’s Law: The value of a network — and hence its price — is dependent on its number of users.
The number of Bitcoin users is growing rapidly and until a large majority own it — perhaps after ten years, when over 50% are estimated to own it — the price will also rise rapidly.
The shape of the path of adopting new particular technology implied by Metcalfe’s law is an “s-curve”. The speed is: “slow-fast-slow”. The s-shape defines the adoption rate of any technology as people get used to it: radio, TV, dishwashers, personal computers, mobile phones — and Bitcoin. It’s always the same shape — for any successful, new technology.
Where to buy Bitcoin — “Exchanges”
The exchanges out there have largely overcome security issues they had in past years. The main exchanges are nearly as “bullet-proof” as it gets.
Edit May 2023: Since this, FTX Exchange has gone bust. So, best to stick with those exchanges who have been most open with regulators, which include Coinbase and Kraken. If you get a private wallet when you can — eg Trezor or Ledger — and transfer your Bitcoin to that, it’s safest.
So, when it comes to buying, two questions to ask are:
- Where can I open an account, and
- Who has the cheapest transaction fees?
Where you can open an account is a bit dependent on luck: which site accepts your ID easily — without you having to go through a palaver with customer service? These exchanges are madly busy as more people get into crypto: customer service responses can take days. Expect it — and act accordingly: “If, at first, you can’t open an account — try another exchange”.
I advise you to try opening an account at pro.coinbase.com. If your ID is questioned, and it’s getting tricky or annoying, then simply open an account at one of the other sites. Do this rather than struggle with Coinbase’s support — which is patchy at best. Using another exchange, you can then buy some crypto even if the fees are a little more. Meanwhile, you might get a response from Coinbase sometime.
Cheapest fees
As I said, among the cheapest I know at the moment is: https://pro.coinbase.com/, which, at the time of writing, charges a 1% fee for buying or selling bitcoin.
Edit May 2023: Coinbase Pro hasbeen renamed “Advanced Trade”. It still attracts low fees.
When logging in, make sure to log in to the “pro” account (May ’23 — now look for “Advanced Trade”) as, when I’ve used it, Coinbase.com (aimed at “retail” investors) is a lot more expensive in commission charges. (Everything else is the same.) Your same login will work with both versions of Coinbase, by the way.
My current personal favourite for buying Bitcoin and Ethereum is CoinJar, which also charges 1%.
I have the phone app, and it’s very quick and easy to use. Having bought it, I always transfer it to a private wallet. This is the most secure practice but a little more work. If you are leaving your Bitcoin etc, on the exchange, Coinbase is probably safer for storage.
Other options:
https://www.kraken.com/en-gb/ (the UK site).
https://www.binance.com/en (the UK site) (see note below)
Edit May 2023: I’m not so fond of Binance now as I’ve heard too many stories of them hiding their accounts. I now recommend the two above. Also, for regular weekly/monthly savings, Coin Coner and Swan Bitcoin. It is always better to transfer Bitcoin from an exchange to your own private wallet. This is a bit more work and it costs around £70–80, but a very worthwhile “step two”. (Step one is “Buy Bitcoin”.)
FAQ
Is Bitcoin — and is crypto in general — a bubble?
No, I don’t think it is.
Is Bitcoin really such a fantastic investment?
I think so.
Can it be banned by governments or regulated out of existence?
Too late — the genie is out of the bottle.
Is it used for “shady dealing”? Can this be stopped?
Yes, it is. But not as much as “fiat” currency — $, £, €. In time, governments will create regulations to apply to a growing number of Bitcoin transactions. Criminals will still use it, no doubt, but this will be outside the mainstream. This adoption by governments is inevitable and is to be desired. It will be good for Bitcoin holders, who will be able to do more with it: and good for governments who will be able to interact with Bitcoin rather than it being completely out of their reach. And, yes: they will be able to tax it. (But — you knew that was going to happen, didn’t you? How do we pay for roads otherwise :) )
How do I buy Bitcoin? Do I need an “offline wallet”?
See above about how to buy. A wallet? It adds slight complexity: but gives more safety for an investment of £50–60 ($70–80). So, ideally, yes. But, if you’ve only got a few £100 invested, it’s probably not worth it.
Edit May 2023: Those wallets now nearer $100 or £80.
Should I buy crypto assets other than Bitcoin? Such as Ethereum…?
You can do so. 100% Bitcoin is fine. Some Ethereum is fine, too, as of June 2022. Say, 10–20%. If you are wondering whether to buy some of the other “alts”, the answer is almost certainly “No”. It’s risky.
If in doubt: stick with the “big daddy” — Bitcoin.
Will Bitcoin always go up in value?
For at least ten years, probably more like twenty. It will increase in value until it is adopted almost universally. It is currently in the steep ascent of the “s-curve” — see the explanation of this above. Eventually, it seems likely to me that one Bitcoin will be worth perhaps $1m. Bitcoin will also become more stable at that time —in other words, less volatile.
What is “blockchain”?
A blockchain is the backbone of Bitcoin and many other digital assets. Every ten minutes, a new “block” is added to the Bitcoin blockchain — think of it as adding one more link. The blockchain is what gives the Bitcoin network its security: because to hack it, you’d need to do all the work which has already been done to build the chain. This is impossible and makes Bitcoin super-secure.
The blockchain can be seen publicly. This enables some analysis of “on-chain” activity — anonymously. This analysis allows someone who knows what they are doing to see what sort of buyer is buying or selling what and when. This analysis is what you see on the Glassnode website.
Will governments adopt “blockchain currencies“
They definitely will. These currencies are called “Central Bank Digital Currencies”, or CBDCs, and are being planned by many central banks and international institutions.
Most banking is old-fashioned. It’s based on 1970s technology — or even paper technology from before that. Banking currently involves taking 1, 2 or 3 days to “settle” contractual payments — eg bank-to-bank. In the trade, this is called T+1, T+2, and T+3. So, bank payments tend to take T+2.
When you use “Faster Payments” in the UK, and you get your money in 30 seconds, it’s taking longer than that in reality. Behind the scenes, it’s still taking your bank 2 days to get the money from where you sent it; the banks “net it off” against each other because they trust each other.
With blockchain, the money is not only actually transferred almost instantly, but also no trust is required: this is called trustless. Trust is built into the blockchain.
Part of the reason Lehman Brothers went bust, heralding the 2008–10 financial crisis, was that the people they trusted to pay their bills in 2 days failed to do so. With blockchain, that cannot happen anymore.
Blockchain is much cheaper, and it is risk-free. Of course, banks and governments will adopt it! These are features they want very much.
Will “CBDCs” displace Bitcoin?
No, because the whole point of Bitcoin is that governments cannot print it — as they have ruined our money through over-printing. Bitcoin’s creator(s) wanted to keep it out of their hands. That’s why Bitcoin is “decentralised” — it’s been designed to be spread over tens of thousands of computers worldwide. No central authority can get their hands on it. Central banks will have their own CBDCs because they are cheaper and safer than “fiat” ($s and £s). No-brainer! But these will coexist with Bitcoin and other decentralised currencies, which have become popular and are away from government control.
How definite is it that Bitcoin will go up in value massively?
When it comes down to it, it either will or it won’t: so, 50% chance! If it doesn’t, don’t be too disappointed.
But, from a risk-to-reward perspective, the potential reward is massive, and the risk is vanishingly small.
For the low risk involved: consider that every year that passes, more and more huge companies, banks, and governments invest huge amounts of time and money into Bitcoin and blockchain. The biggest holders of Bitcoin include Tesla, Square, Coinbase and Michael Saylor’s MicroStrategy.
Bitcoin’s market capitalisation (price x number of Bitcoin) has peaked at $1tn. It will soon overtake that of silver, which is $1.5tn. Next will be gold at $10tn. The risk of Bitcoin falling to zero is, therefore, infinitesimally small. So, if you buy it and the price stays where it is, you haven’t lost anything. The risk of it dropping below today’s price and staying there is, I think, tiny.
Is it all a worry?
No, it’s fascinating and huge fun (as well as profitable at the moment). Bitcoin and blockchain technology itself are a revolution bound to revolutionise finance, banking, and currency transfer.
Bitcoin and blockchain will curtail some of the banks’ obscene profits and hand some power back to the individual — who will be able to send currency from any country to any other country instantly and almost for free.
And Bitcoin and blockchain will remove the power of governments and central banks to “print money”, which we all know (deep down) always ends in tears. Ask Germany after WW1, and ask Argentina and Venezuela today. As well as being “bad government”, printing money is socially regressive: it pumps up the price of assets and lowers the value of wages, which harms the low-paid most. The newly printed money makes its way to the well-off — who own those inflated assets — and harms those on the bread line whose wages fail to keep pace. For example, wage growth in Germany and the USA has been stagnant since 2008 — when the West started printing money. Most other Western countries have not done much better.
A summary of my views on Bitcoin.
- It is probably the financial investment of a lifetime
- It will become ubiquitous. Everyone will have it.
- It is a stabilising force for countries. It is stronger than money, as it cannot be devalued by printing more of it — as governments are doing.
- It is progressive — i.e. it helps those who are less well-off. I’ll only expand on this to say that the poorer suffer most from many different charges that financial institutions make.
- If I buy and hold Bitcoin for ten years, I will make a lot of money.
- Is it all a worry? No — buy it, then relax and enjoy it, I say.
