Is it time to make your Bitcoin fortune?

Is it time to make your Bitcoin fortune?

Bitcoin is HOT stuff these days…wow!

With headlines like:

...and bullish or optimistic outlooks like an expected 70% surge still ahead or tech mogul John McAfee stating that he will “eat his own d*ck” if Bitcoin doesn't hit $1M by 2020 – it’s understandable that most everyone is talking about cryptocurrencies.

While there are some that are bearish on Bitcoin (like this one), and (some) believe we are in a bubble, it certainly is worth exploring.

As we discussed in a previous article, Bitcoin or some other cryptocurrency could be the future of money, so is now your time to get in on the ground floor?

Can anything stop Bitcoin?

In order to get some different perspective for this article, I talked to Miguel, a vehement fan and user/investor of cryptocurrencies, and Marcel, a financial advisor.

For truth or for money?

Miguel and I recently met over lunch to chat through how he sees Bitcoin and other cryptocurrencies. What came out from the conversation are a number of highlights: first, Miguel sees that we are still really in early days for Bitcoin and other cryptocurrencies:

“It’s like trying to watch Netflix on a 56k modem. We’ll get there.”

Structurally and adoption-wise, he believes that we will eventually get “high-speed” to see fuller adoption and use of Bitcoin and similar technologies. For now, we’re not there yet.

During and after the interview, it led me to better understand how he and some others view this as a bit of an altruistic effort.

You see, for Miguel and others, there is hope that this technology (and that’s really what it is) will serve to correct some fundamental problems with the market as it stands – especially with respect to some of the injustices that emerge when the invisible hand doesn’t appear to be working.

Miguel believes that Satoshi Nakamoto, the inventor of Bitcoin, released this technology back in 2009 in response to the 2008 financial crisis.

He also believes he had the technology developed for a long time before that, but this was the moment for a coming out party: “The timing was right for it,” says Miguel.

To serve as an altruistic way of correcting injustices, it could certainly be one way that Nakamoto could make a splash.

For Miguel’s part, he invested back in 2013, and he sees the emergence of Bitcoin and blockchain technology as one of the major tech trends of his lifetime: the other two being the internet and open source software.

He views Bitcoin and other cryptocurrencies as tools that one day will allow for the buying of goods and services in regular, everyday life. (And not just for those frequenting places like the infamous Silk Road.)

Now, for our readers, you may not have the same desires as Miguel: perhaps you just see this as a way of making money.

So, let’s jump in with both feet:

Are Cryptocurrencies for you?

Maybe you’ve been watching the spikes day after day of Bitcoin. While it may be the media’s fault, it is the oft-discussed topic within dining rooms, restaurants and street corners these days.

Now, whether you’re interested in the possibility of owning your own cryptocurrency or not, you may soon own some bitcoin and not even know it.

As this article explores, institutional investors (banks, hedge funds, etcetera) are highly interested in investing in this as a portfolio investment. This signal (and others, like Goldman Sachs’ interest) is really interesting for the market: it is a signal that Miguel believes we should watch closely, in case large investors attempt to usurp the supply:

“We have to consent to (institutional investors) buying the supply within the market. If a large fund buys up trillions of dollars of Bitcoin, it could become a Rothschild-like scenario.”

While this certainly could become a reality, Miguel is bullish on the situation as well: “even if that were to happen, other options could come into play for consumer investors.”

Thank goodness: it appears not all is lost!

Risk tolerance and volatility

For those of you that already have an investment portfolio, you may or may not have heard the term “beta."

In short, beta is the measurement or how risky an investment is versus the benchmark of the market. Here’s a short intro to the topic:

As you can imagine, depending on your age, investment goals and risk tolerance, cryptocurrencies might be a way to accomplish your investment goals. However, it’s important to have a discussion with a professional financial advisor – ideally one that is fee-only financial planner.

They could help you manage the overall beta of your portfolio. Because you never want to risk any more than you can afford to lose.

So while the temptation of amazing riches could be wildly appealing, do plenty of research and make sure that what you invest in works for you.

That said, for countries that are in financial upheaval, cryptocurrencies can offer a respite from the wild fluctuations of domestic currencies. Like those recently seen in Zimbabwe, where Bitcoin was cited as a great means of escaping hyperinflation. (I’m sure Miguel will be pleased with this altruistic use of Bitcoin.)

What do Financial Planners say?

I wanted to get the perspective of folks that live in this industry to see what they think. So I reached out to a number of financial planners and got a few “no comments.”

However, Marcel Leblanc from Onvisor.ca, an online and on-demand platform for personalized financial advice, offered the following:

“I don’t pretend to be an expert on this subject however, in my opinion, cryptocurrencies carry both opportunity and risk for investors.

On the one hand, they’re new and exciting and have the potential of having a dramatic impact on the way finance operates in the future. On the other, it is largely an unregulated market and has no real tangible business model or revenue stream other than the speculation and perceived value of the asset itself.

Before investing into cryptocurrencies, investors should consider a few things:

  • How well can they tolerate volatility?
  • What will they do if the value of their investment drops 50 or 80%?
  • Do they understand the risks involved?
  • When do they plan to sell the investment to take profits?

My only best advice to someone considering investing into cryptocurrencies would be to make it a small portion or their overall investment portfolio. This is the part of your investment you can afford to lose without it affecting your retirement or other savings goals."

Upsides and downsides

Now, of course, as with anything, there are upsides and downsides.

Of course, there are the benefits of potentially making gobs of money with this.

Yet, depending on where you are, that money could be taxable, whether now or in the future as regulations change.

For his part, Miguel noted three main risks:

  1. The concept is still in its infancy stage. Though, if you really want to keep your Bitcoin/digital currency safe, you could always lock your stash away in a mountain in Switzerland (I hear it’s lovely this time of year!);

  2. It is risky and volatile (though, he’s in it for the long-run and doesn’t care, per se); and,

  3. It can be quite nefarious in reputation. As mentioned above, it has a connection to Silk Road, and bitcoin has been cited as a mechanism for supporting terrorism. That said, there are even cryptocurrencies popping up that are trying to eliminate “fake news” and hate speech, so maybe it’s not all bad, right?

To add a fourth, this is technology and it can run into challenges, including people trying to steal what is yours. For more on that, check out this article.

What about regulations?

Right now, the regulatory world for cryptocurrencies and investment are a bit of a wild west.

What is being seen across the world varies widely, so here are a few points of order for individual investors:

  • As of summer 2017, the Canadian Securities Administrators were probing into ICOs, or initial coin offerings. Digital currencies are subject to taxation and you are required to declare gains or losses from selling or buying digital currencies on your taxes. As far as buying and selling, it seems as there are no barriers to entry as of today.
  • In the US, Coinbase - an online platform for buying, selling, transferring or storing digital currency, was ordered in November 2017 to report those with over $20,000 in annual transactions on its platform. Bitcoin futures are now being traded on exchanges (as of December 2017), but regulators are apparently scrambling to catch up.
  • Various countries are evaluating the use of cryptocurrencies for various reasons:
    • Venezuela, currently in the midst of a massive financial upheaval, has created a new virtual currency in a bid to ease the country's economic crisis.
      President Nicolas Maduro said the Petro would be backed by Venezuela's oil, gas, gold and diamond wealth.
    • Bitcoin is recognized by Japan as legal tender. Japan appears to be a leader in the pro-Bitcoin world as far as governments are concerned.
    • China has banned Bitcoin and Bitcoin Cash emerged in its place. The latter is run by a “bunch of shady guys” according to Miguel. China’s central bank thinks that “Bitcoin will die”, citing a French economist who thinks we are sitting on a bubble.
    • Greece apparently considered Bitcoin as an official currency back in 2015 in the midst of financial hardship and Estonia is considering creating its own currency, the “est-coin”.

Are there other options?

While there are lots of other options than just Bitcoin, in chatting with Miguel, he cited that there are three really interesting options to him these days:

1. Bitcoin

While we’ve discussed Bitcoin at length above, Miguel really likes Bitcoin because of the democratic spirit it brings to currency. He finds it to be “profound”, especially in jurisdictions where governments are not as trustworthy as places like Canada.

2. Etherium

Etherium is really exciting for Miguel. The “oil” to Bitcoin’s “gold”, he is really excited to see the evolution of Etherium.

While it might just seem this is all about buying an outrageous amount of virtual cats (seriously, not a joke), he sees this as an amazing technology that could revolutionize the web of the future.

While the topic of “gas” is something we’ll leave for another time (you can read more about it here), Miguel is really excited about the potential implications it could have on how we use the internet and applications.

3. Litecoin

This is like Bitcoin but more democratized. You don’t require an ASIC machine to mine the coins and it also does a higher amount of transactions per second.

Extra reading

If you’re a keener, here’s some more reading:

Is it for you?

This is quite a hot and fast-moving topic, with much to be considered with respect to investing- or not- in this space. The moral of the story continues to be:

You have to do your homework.

This may be a longer-term play that could become much more mainstream, but nothing is guaranteed.

As governments and industry continues to work to catch up on whatever this “thing” is, it seems that one thing is absolutely for sure:

This is much more likely the beginning than the end.

What do you think?

Have you invested already in cryptocurrencies? What’s been your experience? Are you holding back until things seem more certain?

Share your thoughts in the comments. 

Stephen’s opinion:

Unlike people and companies, currencies don’t create value in the marketplace. It’s pure supply and demand, just like gold, and right now there is a TON of demand. No, I’m not an expert on crypto. And it all depends on how much risk we are willing to take…

 

But to answer this week’s question: Is it time to make your Bitcoin fortune? My personal answer is: no.

 

There’s a lot of mania out there right now in the cryptocurrency marketplace – and that’s typically the worst time to buy. Buying now is a lot like walking into your local casino and putting it all down on red. It could pay off big time, but you could also lose your shirt. 

Disclosure: Some links in this article may be affiliate links. We're letting you know because it's the right thing to do. Here’s a more detailed disclosure on how HTS makes money.

Comments

Money Beagle's picture

To me the chart looks downright scary. It has bubble written all over it, with the only question being when it goes down.

December 12, 2017 @ 9:57 am
Stephen Weyman
Stephen Weyman's picture

Ya, I hear you Money Beagle. When you see a peak that large it feels like it couldn't possibly go higher than that. However, to balance that point, I'm pretty sure I felt that way about Bitcoin back when it was under $1,000 and had some pretty big upswings.

The bottom line for me is that I don't usually invest in something that only stores value and can't create value. I might consider it with some fun money or as a way of diversifying away from normal investments but I imagine I will stay of the crypto train completely until we're all paying with it on the daily.

December 12, 2017 @ 1:26 pm
Pablo
Pablo's picture

Miguel mostly got it right, there is no if's or maybe, Bitcoin/Cryptos will become the new world currency. The question is how soon will it happen. I predict sooner than later. Most of the World does not see the big picture and realize what is happening, when the US Feds remove Gold as the standard backing for the Green Back. The powers that be knew, that was the beginning of the end for the US $ and the World Fiat Currencies. Do little checking and you will find in the last few years many countries has been stock pilling Gold. This is because they know the US Economy has gone over the edge in terms of debt and there is no turning back.
The US Goverment has only one option and that is to continue printing more money to sustain the status quo. Until the economy collapse under it own weight. As more money gets printed, the value of the dollar will begin to fall. Eventually getting so low that people will start panicking. That's when the stampeed will start into Bitcoin/Cryptos. If u think that Bitcoin is a bubble now wait until then, the bubble will incompass the whole world. Bitcoin will not only make a moon shot but a cosmic shot straight to the Milky Way !

December 12, 2017 @ 2:50 pm
Stephen Weyman
Stephen Weyman's picture

Your logic is reasonable Pablo. One thing you may not be considering well enough though is that Bitcoin is just one crypto currency and it is far from being accepted worldwide as an official currency of nations.

There are a lot of powerful people and nations out there that have a big interest in what currency is the primary global currency. If a time comes when a true global currency emerges, you can be sure that all the big nations will want a say in that process. There's nothing stopping them from creating their own crypto currency using blockchain technology at that time.

If that happens, or Bitcoin gets regulated out of existence, then what is mania today could turn into a mass exodus tomorrow. Buyer beware.

December 13, 2017 @ 10:29 am
Iris Herrera
Iris Herrera's picture

I perceive the bitcoin fever as a product of a Ponzi Scheme very well conceived according to our times......

December 12, 2017 @ 9:25 pm
Pablo
Pablo's picture

Atually i did consider that Bitcoin may not b the dominent coin in d future, that is y in my piece i stated Bitcoin/Cryptos.
As a matter of fact i think there is other coins out there that will surpass Bitcoin and do a lot better in terms of world acceptance and being user friendly for individuals and business alike. In any discussion about Bitcoin and d cryptos we first have to understand Blockchain. Only after understanding Blockchain can we understand Bitcoin and cryptos. Blockchain will be the biggest social change in human history!. The future potential for what Blockchain can and will do, is mind blowing and unemaginable. Blockchain has forever change the world for good in so many present and future ways, but 99% of the world does not know it as yet.

December 13, 2017 @ 1:59 pm

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