How to handle your Bitcoin investments in 2017
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[One line summary: if you have bitcoins, just keep them for a long time; don’t daily trade; ignore the news.]
The year of Bitcoin
Year 2017 has started with A LOT of noise around Bitcoin.
On January 1st, its price was approx. 960 USD. On January 4th, it reached 1180 USD (+23% in 4 days), to then immediately plummet back to 960 USD as of January 5th (morning time PST).
This is how the price (and volume) graph looks like:
And, of course, when Bitcoin was rallying up, the usual huge group of people were ready to call 2017 “The year of Bitcoin”. Well, not so fast.
Let me tell you what I think about it.
1) The media has no clue
The media has NO clue on why the price went up, or came down again. The NYT was mentioning people buying bitcoins in Venezuela, where if you look at volume, almost nothing could be related to it.
My suggestion is NOT to listen to what the media says about it, especially if you want to base your investment decisions on what they write.
Most writers have NO clue. The few that do, they usually don’t write about it.
2) Do not daily trade
Unless you are a professional trader, DO NOT daily trade with bitcoin. Commissions are high, you are probably influenced by something you’ve just read, and you are defenseless against market manipulation and “pump and dump schemes” which are still very common.
3) A good investment strategy
If you are interested in Bitcoin as an investment, you might follow my simple investment strategy:
a) Buy bitcoins, and keep them for a relatively long time. Resist the temptation to buy more or sell unless you thought about it very carefully. I bought a significant amount, and kept it for more than three years now. It is paying off, but more importantly, I am not going to sell anytime soon because I fundamentally believe in the long term potential of this investment. I will consider selling my bitcoins in 2018 only if they hit above $5,000. Otherwise, I will keep them until 2020 at least.
b) If you are a technical expert, you might want to make bets on emerging cryptocurrencies, but only for a short time and only at the beginning. This behavior is more speculation that wise investing. Do it at your own risk. I did it five times, and it worked every single time (including with Ethereum)— I’m either very lucky, or I have good nose for what cryptocurrency is worth watching.
4) Any other reason to buy/use Bitcoin?
Frankly, no.
Bitcoin is only a good store of value, at the moment.
Very much like gold is.
If you live in a distressed country (e.g. Venezuela, Cuba, Zimbabwe, Siria), and you want to save money in a way that prevents confiscation, then Bitcoin might serve this purpose, but at the same time I highly doubt that it is easy for these people to sell their local currency in exchange for bitcoins. In other words, these people would need Bitcoin, but almost nobody is willing to give them bitcoins in exchange for their “shitty” currency.
5) Disclosures and personal interest
Think of the Bitcoin arena as the Wild West. Few rules, many “pirates” and bandits lurking around. Be extremely cautious whenever you hear a suggestion related to Bitcoin. Including me!
(In fact, here’s my disclosure: I have held bitcoins since 2012, and in relatively large quantity since 2013. I have “speculated” on a few other cryptocurrencies in the past, and have always disclosed it when writing about them.
I still hold bitcoins (but no other cryptocurrency), and I am keeping them for at least a few more years. I have a vested interest in the Bitcoin price to go up.)
Try to ask for a similar level of disclosure from anybody whose opinion you are going to consider when taking investment decisions.
In most cases, these people won’t disclose a thing. Which means… Be careful. It’s the Wild West, after all.
6) To do what you do, do you really need Bitcoin?
The most important question you should ask when evaluating a “Bitcoin” startup is the following:
To do what you do, do you really need Bitcoin?
An example? Startup XYZ is going to disrupt the 500 Billion dollars remittances business, by using Bitcoin to reduce transaction costs.
An utterly terrible idea.
To provide a remittance service, you need local distribution (a little shop in a little village in the Philippines, where your daughter can go to withdraw tthe money you’ve earned cleaning toilets for rich people in the US) on a global scale (if I want to send money to my family, I need to know that you can reach them whenever they are. I don’t want to look for the only small company that serves my small village. The remittances company needs to have a heavy presence in several countries).
Using Bitcoin doesn’t give you distribution. It actually doesn’t even save you transaction costs, because guys like Western Union simply use a few VERY large wire transfers between countries where the transaction cost represents a very low percentage, because it’s based on a long term agreement with large banks. Most of their costs are logistics and operations (having the actual dude at the airport or at the beer stand take or give you money to/from your relatives).
In other words… Your startup idea is total bullshit. And you are simply in love with Bitcoin or — worse — you are taking advantage of a lot of buzz and the abundance of inexperienced investors.
I’ve heard a ton of stupid ideas like this. If you are considering investing in Bitcoin startups… My best advice is simply: DON’T. (unless you really know what you are doing, of course).
7) The Bitcoin idealists
What about the idealists? Those people that tell you “Bitcoin will make the world better”?
I respect them, and I admire them. Bitcoin has a chance to become a great tool to increase our freedom. But investing in Bitcoin to profit has nothing to do with that goal.
If you really want to contribute to Bitcoin, donate to the Bitcoin foundation or a similar entity. Or even better, to the Electronic Frontier Foundation, which has nothing to do with Bitcoin but it certainly had a huge impact on our freedoms so far. (No, I’m not providing any links; google them).
8) Long or short, or else?
Do you want me to predict the Bitcoin price for the next several months?
Yes, I could do that… But I prefer simply to point you at my disclosure statement above. I am holding Bitcoins, therefore I think and hope that their price will go up substantially.
An exact number, perhaps a BIG number, would only serve the purpose of “feeding the troll”. There is enough noise out there already.
Simply put: if you believe Bitcoin is here to stay, it’s reasonable that its price will go up. I am long Bitcoin.
Also, please don’t ask me to invest in cryptocurrencies on your behalf. I am not doing it.
9) But the Blockchain!
I don’t understand people that say “I don’t care about Bitcoin, but I am really bullish on Blockchain technologies!”.
Really?
The value of a Blockchain is simply to overcome fail-stop failure mode and offer distributed consensus, without a central authority, in a way that is verifiable, etc.
However, the value of the Bitcoin Blockchain in particular is that Bitcoin has value. Without Bitcoin’s value, its Blockchain would be useless, because fewer and fewer people would mine bitcoins, and therefore a 51% attack would become easier and easier.
I’m sure consultancy firms made a fortune selling stupid reports to big corporations, trying to convince them that the Blockchain is the next big thing. Some VCs did the same mistake. I’m sorry for them.
Conclusions
I hope you’ll have a great 2017. Be a Bitcoin monk, and don’t let a bunch of ruthless speculators take your money away from you by having you take financial decisions based on the panic of the moment.
And, if you want to hold… Then HODL.
If this article has been helpful to you — can you guess what you can do for me? (hint: it’s about letting more people read it. Pick the best option, it’s probably around you in this page, or at least within reach).
Thanks.
p.s. if you want to read more about this subject, I recommend you take a look at this article by Vinnie (among many great others). Vinnie, if you read me, hello there!
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