Why Now is the Best Time to Get Involved in Bitcoin, Intelligently
The Magic of Dollar Cost Averaging
Ten years on, and the Bitcoin juggernaut shows no sign of slowing down. To some, the cryptocurrency provides a novel method by which to transact, be it on sanctioned markets or otherwise. To others, it’s money in its quintessential form: a disinflationary asset more scarce and more easily transmitted than gold.
Crucially, the Bitcoin protocol is made up of a thriving ecosystem of equipotent users — arguably its greatest strength, as no single party has the ability to censor, reverse or alter transactions broadcast by another. In the same vein, no gatekeeper can prevent anyone from participation in the network at any level.
At a very high level, the Bitcoin protocol provides a means for individuals to synchronise a database that remains identical for all peers on a network. In this database is an extensive record of transactions between pseudonymous addresses (dating all the way back to 2009), which is continuously updated at ten minute intervals as new transactions (grouped in blocks) are appended.
In order to propose a correct block, a miner must dedicate computing power to solving a cryptographic puzzle — for their troubles, they receive a reward (a combination of a hardcoded subsidy and any fees from included transactions). It’s incredibly difficult (and expensive) to mine a block, but trivial for anyone to verify that it is valid, meaning that attempting to cheat will result in time and money being wasted to no avail.
Isn’t Bitcoin Dead?
Much to the chagrin of vocal opponents and media outlets (who have, at the time of writing, pronounced Bitcoin dead 363 times), the space is alive and kicking. While dollar value has taken a significant downturn since highs of $20k per coin in 2017, a myriad of positive signals point to the overall health of the network increasing over time.
From a technology standpoint, some of the most notable developments are taking place not only on the Bitcoin blockchain, but on ancillary layers that leverage on-chain functionality to enable payment channels. Extensions of the protocol like the Lightning Network allow users to instantly transact without the constraints imposed by slow confirmation times or high mining fees.
Granted, this layer is perhaps not quite ready for mainstream adoption — it comes with a learning curve, and there’s still work to do on the UI/UX front. Nonetheless, this hasn’t prevented its adoption by the more technologically-inclined: presently, there are 9000+ Lightning Network nodes, ~35,000 channels and ~950 BTC circulating off-chain. As usability is improved, the technology will be better equipped to service both businesses, individuals and use cases that necessitate cheap and instantaneous payments.
With regards to adoption, there has also been a steady increase in activity — in June, CoinMetrics data revealed that there were over one million active public addresses. Worth noting, however, is that this alone is not an entirely reliable metric to gauge the onboarding of newcomers (after all, a single user can generate a near-infinite amount of these), but it does speak to usage. A better indicator may actually be realized market cap (circulating supply * current market price), a metric reducing the sway that inactive coins have on traditional market cap — since January, this has remained relatively stable around the $90b mark — close to it’s all-time high.
It appears as though the unrelenting memes about institutional investors have finally willed them into existence, too — this excellent analysis by @khanfk suggests that the recent surge in Bitcoin’s dollar value is chiefly attributable not to retail investors, but to bigger players holding massive amounts of funds.
“It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.”
Though it may initially seem that the creator of Bitcoin was trying to bootstrap a monetary network in a hilariously MLM-type fashion, it seems to be doing the trick. Bitcoin continues to consume mindshare, both within cryptocurrency markets and beyond. Due to complete detachment from the legacy financial system, many recognise the value of Bitcoin as a hedge, and in the long run, believe that it will serve as the ultimate store of value.
Of course, Bitcoin is still a massively speculative asset exploring largely uncharted territory — there exists a very real possibility that the whole system outright collapses one day. Nevertheless, as cryptocurrencies go, it would appear to be the best contender for a state-agnostic money worthy of the digital age, and therefore has tremendous upside potential. The first of its kind, it promises an escape from a grim future of cashless societies governed by Big Tech and three-letter agencies.
As with any speculative asset, going all in while using your kids as collateral for a loan is a terrible strategy. Attempting to time such unpredictable markets is a highly risky endeavour that very rarely ends well. For the average investor intending to hold their coins over a longer time period, there’s really no substitute for dollar-cost averaging to fight creeping FOMO and to reduce exposure to volatility.
A dollar-cost averaging strategy involves routinely purchasing assets over time, instead of making a single purchase with a lump sum at once (therefore ‘averaging’ the cost of a single coin). To illustrate:
By investing $10,000 in one go, an investor takes a gamble — if they do so in 2011, they’ll find become the proud owners of ~6.67 coins. In 2014, that same amount would only net them ~1.43 BTC.
Conversely, by making ten $1000 purchases (one each year), the investor ends up with ~4.18 BTC. The above data is fictional, but the point is that DCA ensures one can more sensibly invest — they may not get coins as cheaply, but nor will they make the expensive mistake of buying a local top (and descending into madness when price beings to dip again).
The strategy can be tailored to suit the individual — some may invest five figures on a yearly basis, whereas others may opt to only spend a few dollars every day.
Amber makes the process as simple as possible by letting you hook up your bank account (whether via direct debit or a direct connection), and having the app do all the work.
With top up and auto-recurring features, along with the option to convert your spare change into satoshis, it provides an ideal portal into the Bitcoin ecosystem, and for the first time allows you to dollar cost average on auto-pilot.
I hope you got some value out of this.
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CEO & Co-Founder @ Amber Labs