FinTekNeeks

From Minimalism To Tech

Show Me the Bitcoin!

Posted in Cryptos

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.

Introduction

It’s something very personal, a very important thing. Hell! It’s a family motto. Are you ready Jerry? I wanna make sure you’re ready, brother. Here it is: Show me the money. Show! Me! The! Money! Jerry, it is such a pleasure to say that! Say it with me one time, Jerry. – Rod Tidwell in “Jerry Maguire”

Money, Money, Money

“The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money.” – Wikipedia

Many times, we keep score with money. We tend to value people who have lots of it. Athletes sign multi-million dollar contracts in reflection of their value to the sports team. Sometimes the value is overrated, but sometimes the money is well-spent, leading teams to victories and championships. Those without may feel looked down upon by those who have money.

Money may also be correlated to stress level and self esteem. If you have little of it, your stress level will be high and self esteem low. When I started out in my career, I had a modest income. I had to make sure I budgeted, not go out too much, and be careful with my spending. When I was promoted, I didn’t have to worry so much about budgeting, because I spent way less than I was making. I could go out to eat and drink without concern on the price. But, in a way that was foolish, because I missed many investment opportunities by not being disciplined. Some will say, “Mo’ money, mo’ problems.” But, you would agree that people in general would love to make mo’ money.

My reasons to invest in Bitcoin (BTC)

  1. By definition, bitcoin is money. Bitcoin is a medium of exchange. Tools are built to allow a system of payment for products and services. Exchanges are developed to allow bitcoins to be bought and sold with legal tender from different countries. It is also divisible and can be transacted with small units, for example one Satoshi (sat) unit is 1/100,000,000 bitcoin.
  2. It is an alternative to cash. Financial advisors always recommend diversification. However, they limit investment in only cash, bonds, and stocks. Although there are currency swaps, options, futures, and alternative investments, for most people, it’s best to leave those types to financial institutions and sovereign wealth funds. Bitcoin can be used by anyone who wants to diversify. It is relatively accessible for people with bank accounts. Since you can buy fractional bitcoins, one can invest any small amount to understand how bitcoin works. Gold and stocks can be cost prohibitive due to high prices.
  3. Bitcoin gained my trust. It is being more accepted by different merchants and people worldwide. OpenBazaar is an online merchant site that strictly transacts in bitcoin. Younger generations are more accepting to electronic payment systems like PayPal and Venmo. So, my expectation is that newer generations will adopt bitcoin as part of their electronic payment system. Also, economic instability causes increases in bitcoin interest. When Greece was running the risk of default in the European Union, bitcoin prices rose. I speculate that people in Greece has limited access to the Euro, thus as a hedge, bitcoin gained interest, increasing the price.
    Bitcoin is decentralized, meaning that one entity does not regulate or control the transactions. Since bitcoin is not controlled by one government and the code is distributed worldwide, there is less risk of manipulation like debasement or high inflation. As long as you have control of your keys to your bitcoins, you can move locations to access them if there were internet outages. With the idea of open source, the source code for bitcoin can be reviewed and examined by anyone.
  4. I expect bitcoin to increase in value. There is a limit on how many bitcoins can be available. Only 21 Million bitcoins can ever be available. The law of supply and demand applies to bitcoin. Unless all server nodes agree to change the code to allow more bitcoins to be mined beyond 21 million limit, the limit is set and once it is all mined, it will become more valuable as more people use it. Also in areas of rampant inflation, bitcoin – like gold – can be a hedge to the local currency, or converted to stable currencies.

What would make me sell my bitcoin?

Of course if situations change where the above reasons become invalid, I will sell bitcoin.

Also, the technology is not mature yet. The bitcoin exchanges are young and are prone to theft and scams. Many bitcoin users lost money in Mt. Gox in February 2014. MyCoin fraud was exposed in 2015. Bitfinex experienced a hack in August 2016. Security is a big concern and if more exchanges fail, then market liquidity will be a big red flag.

Ease of use is very important. To keep bitcoins more secure, I would transfer BTC to a hard encrypted wallet, or keep the keys physically, in a paper wallet. While accruing more bitcoins, it may become cumbersome to keep BTC separate, or keep the physical keys in a safe location. Once you lose your key, recovery may be impossible.  Ironically, since lost bitcoins occur, this makes bitcoin even rarer than the 21 million limit.

Regulation may become a possibility. Rules and laws are being passed to tax and maybe even regulate the use of bitcoin. Banks and governments are hiring blockchain experts to help them understand bitcoin and blockchain technologies. Once restrictive policies are in place, it may be prudent to divest from bitcoins.

You may have your own reasons to buy or not buy bitcoin. You must do your own due diligence, and never buy because of fear of missing out (FOMO). Like my previous article regarding FANG stocks, there were many opportunities to buy this category leader, bitcoin.

Bitcoin.org
Bitcoin Subreddit FAQ

Disclaimer: This is not a stock/investment recommendation and I do own some bitcoin. Consult your financial advisor for any investment advice.

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