The question that’s on everyone’s lips is…is Bitcoin a scam?
I’ve held back and resisted sharing what I think about Bitcoin for a load of reasons, mainly because I don’t like to comment on things I do not feel I have a decent level of knowledge about and up until today, I wasn’t in Bitcoin.
And so I felt that I should just keep learning, studying and researching. I have many good friends and business associates across different areas of business who are in Bitcoin and who have been in Bitcoin since 2013.
So I want to share a few things which I think will be very relevant.
What is Bitcoin? And what’s the market of Bitcoin? what’s the function and the purpose and how it’s being used? And ultimately what’s the future of it?
I’m not going to predict something that I don’t know how to predict and I don’t have a crystal ball, but let’s get dig into it.
Bitcoin is designed as a scarce finite amount of currency that is decentralized, so it is not in power or controlled by any bank or individual authority it’s decentralized and the blockchain technology it is built on is essentially a public ledger, upon which data is shared across all computers and not controlled by one server or mainframe and as such is supposed to be highly secure.
Now, the way it’s changed is that Bitcoin is now being used as a store of value, whereas its initial purpose is for a currency so that people would use Bitcoin to buy and sell goods and services. In the beginning, it was used on ‘Silk Road’ and the ‘dark web’ for perhaps more illicit or illegal purchases because of the discretion, security and anonymity it.
But of course, it’s become a little bit more mainstream now and it’s not really a currency because the trading costs are high if you want to for example buy a coffee with a Bitcoin for which it was initially intended, the transaction costs are high. So what a lot of people are doing is getting into Bitcoin as a store of value because the price is going up and up and up and up and up and I don’t even want to say what the price is today because tomorrow it might be high or it might crash.
Now, I know people who got in at $5, I know people are going at $30. I know people who’ve gotten in at $100 and then he went up to $8000 at its previous peak and now it’s gone ballistic.
Okay, let’s talk about what Bitcoin is and what it isn’t. Because there’s a lot of people getting into Bitcoin that don’t really know what they’re doing or don’t really know how to invest and they’re speculating rather than investing and I know many Bitcoin fans might challenge me on this, but I think it’s speculation right now. I do not think it’s a well researched, long-term safe investment class yet and the reason being is because it’s not been going long enough.
If you think property, stocks and bonds, they’re centuries-old so there’s enough to build enough knowledge and research and to have historical data to be able to make a smart investment, Bitcoin i’s very very young.
Now, the upside of it being very young is that it is disruptive. It’s unregulated and therefore there is a big upside. So that’s why the price has been going mental, compared to other asset classes.
And there’s not just Bitcoin, there’s a huge number of other cryptocurrency coins and I like the tech behind cryptocurrencies, I like the concept of a cryptocurrency and the aspect of decentralisation. Right now we’re in a real decentralisation of money time at the moment because if you think about crowdfunding, private investing and now with cryptocurrency a lot of power and control is being taken away from the banks.
And the concept of decentralisation because it’s very entrepreneurial, It works in the concept of free markets and of capitalism and of creating competitiveness and if there is more competition to the banks it should ultimately make money fast and with less friction, it could make lending and borrowing cheaper and more instant. It’s likely that the blockchain and the technology behind Bitcoin is going to improve the speed of all types of transactions.
Take property transactions, for example, it takes 6 weeks and at the moment if not longer to buy a house and to sell a house it can take months, but with the blockchain public ledger, everyone can fuel transactions and there is complete transparency, so there’s a lot of upsides of cryptocurrency and the technology behind it.
Okay so if you’re going to go in on Bitcoin you need to know what you’re doing and you need to research, find a mentor or find people that have been investing for years to help you and once you decide to go in on Bitcoin always invest progressively at different price points so you do not go all in and risk losing your investment, this way you will negate some of the downsides and your pound-cost average investment will improve.
Now, I know a lot of people are bullish on Bitcoin and the community speculate that is could go up into the hundreds of thousands and I’m definitely not saying that’s not the case but you’ve got to do your research and make a decision when to go in. Initially, I didn’t go in because I wanted to short the market but it just kept on going up and up and I didn’t want to wait any longer for a correction and the thing that gives me confidence about bitcoin is the underlying technology behind it. The blockchain has many great uses from property transactions to voting at polling stations and also in the medical and pharmaceutical space. And it’s decentralised so no one corporation can own it.
But of course, now Bitcoin is becoming more and more mainstream there are discussions about governments or countries banning it or suspending exchanges from trading it, but in reality, it’s a global market so everyone can probably still get there hands on it from any country.
Okay so moving on, I’m not going to predict what can’t be predicted but if you look at all of the different cryptos that are out there and you know, cryptocurrency is ultimately a start-up enterprise and just like with the .com boom and bust many will go from being worth a penny to a pound overnight, but it’s also very likely that most of these cryptocurrencies are not going to survive and thrive because most startup businesses have a high likelihood of going bust.
So what is even riskier than getting into Bitcoin is going into crypto that’s a bit newer, that hasn’t maybe got the systems or the financial backing behind it yet but of course different cryptos have different uses. So there’s Bitcoin and then you have others that are like smart contracts so they do not all’ necessarily have the same function or purpose for example Ethereum is a smart contract cryptocurrency network.
So I’m not necessarily endorsing Bitcoin specifically but I think it’s exciting that we’ve got something that is disrupting the banks and we’ve new forms of currency and that there’s a finite supply as the thing with traditional money is that they print more and more and it devalues it as there is always a supply and a demand but when you have a finite amount of Bitcoin as there is, ultimately you should get to the point where you have more demand than supply but it cannot be devalued as more simply cannot be created so it’s not deflationary or inflationary and that’s definitely something that’s interesting.
Okay so when it comes to investing in Bitcoin or looking at something to put your savings into it’s important to diversify, yes you can put some money into cryptocurrencies such as Bitcoin or Ethereum but you can also invest in funds, stocks and shares which are much less risky. For example, I use Hargreaves Lansdown and through one app I can invest in any fund, bonds or shares it’s an easy way of investing.
Now overall Bitcoin is a good opportunity with a huge potential upside, but there are some huge downsides too, who knows what the price will be in 2 years time?
A lot of people are big on Bitcoin because they believe that the financial system is fragile and broken, and so a positive point about introducing cryptocurrencies is that it is decentralised and I see Bitcoin as a hedge against the banking system. This is why I have always invested in gold because as our currencies become worthless, gold will increase in value.
In the end, I would say that investing in Bitcoin is like investing in a start-up and it’s risky so it would be seen as a hedged bet investing into the cryptocurrency market but of course there could be a huge upside.
Here's Rob Moore's thoughts on Bitcoin:
Here's what Mark Homer has to say on Bitcoin: