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Saturday, March 23, 2019

Looking back at my Bitcoin take

During the early part of the 2017 Bitcoin boom, a relative of mine emailed other relatives, including me, wondering whether to invest.

She wasn't religious about it or anything; she only wrote, "Maybe we should be investing a little in this". And I certainly agree, at least if you interpret "a little" to mean an amount well under 1% of one's net worth. I own a little Bitcoin, which I bought primarily to be able to experiment with.

At the same time, many of the world's scams are built of a sense of fear of missing out, and come with a pitch of "Sure, it'll probably go bust, but what if it's the next big thing? Can you really afford not to put in something?" As if imaginary billions vaporizing is worse than losing the hard currency that's actually in your pocket.

So here was my response. 30 months later, I looked it up. The BTC price at the time was about $5300; now it's about $4000, where it's been stable for the past year. In between, of course, it briefly (very briefly) went up to $20,000.

So while my advice to not invest currently appears sound, that doesn't mean a well timed series of trades couldn't have made a ton of money, or that buying at the time and holding won't eventually pan out.

Here's what I wrote on Oct 13, 2017:

I  have a lot of thoughts. Mostly, I think almost no one understands what the underlying value of these things is. If everything you can buy today turns out to have no value in 5 years, very few people would be legitimately surprised. But, that was my reason for not buying Bitcoin 6 years ago, which would have been very lucrative!

I've been arguing for years that "coins" should not be considered to have significant intrinsic value because the function of one cryptocurrency is pretty easy to replicate. In a way, that's happening now, where Bitcoin's share of the cryptocurrency market cap has fallen by 50% in the face of many new competitors. Of course, the overall value may grow faster than competitors can proliferate, but there is little reason any functional use of one currency can't be expanded to handle another. Would someone in 2050 rather have 1 million Bitcoin or $1000 USD? I would bet on the latter, because Bitcoin will just be one cryptocurrency among many, many with the same usefulness--or much more.

I could be wrong, and what will happen in the short term is anyone's guess. But if I'm the least informed player at the table, I think it's very unlikely that I'll come out ahead. Maybe that's just my cautious philosophy, which sometimes is a great asset, but might sometimes keep me from seizing an ambiguous opportunity.

It's worth noting that the industry still hasn't come up with a good, popular, secure way to even maintain an account of these "coins". I've had friends get theirs hacked and stolen, and others be unable to get the companies who provide their "wallets" to let them transfer their coins out. It's the wild West over there.


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