My Humble Experience with Bitcoin

I will admit it – I missed it.  I did not buy Bitcoin when I first heard about it in 2011.  I then read about Bitcoin again when those twins from Harvard (the portrayed villains in the movie The Social Network) were first trying to start a Bitcoin ETF.  I dismissed (and by dismissed, I never thought to buy) Bitcoin again when I heard about the heist at Mount Gox in February 2014.  Bitcoin, for me, lay dormant until earlier this year when the “currency” went up a lot.  Family, friends, and clients continue to ask me about it.

“Do you know anything about it?  What do you think?  Is it the future?  Should I buy some?

The financial media has been doing their part to get everyone worked up about it.  They are getting every pundit on TV to proclaim their view of Bitcoin.  People are predicting insane price targets for Bitcoin, celebrities are starting their own ICOs (Initial Coin Offerings), and from one source, there are more Coinbase accounts than Charles Schwab brokerage accounts.

My knowledge familiarity might be more than yours on the topic of crypto assets but that doesn’t mean that I know what is going on and I definitely cannot predict what will happen next.

Here are a few articles, distilled down from the 100’s, that I have read on this topic so far that could help you make sense of all this.

Read in order:

Explain Bitcoin Like I am Five

A Letter to Jamie Dimon

Original White Paper by Satoshi Nakamoto.
The creator of Bitcoin is anonymous which is concerning (though I don’t know who actually created the first currency either).

What I see…

  • Bitcoin mania is global.  Those who have drunk the Kool-aid are all-in on this.
  • There are some really smart people that are involved in Bitcoin.  Software developers are creating decentralized systems with blockchain technology.
  • People see Bitcoin as digital gold.  Like gold, bitcoin has no cash flows.
  • The price action of Bitcoin looks like a “pump and dump” scheme by those fortunate people who bought early and would like to see it not crash before they can sell out of it.
  • Greater Fool Theory seems to be at play here.  Though this might be true, it doesn’t seem that crypto is going away.
  • Nobody understood the “Internet” when it first came out.
  • Like any industry, there are good actors and bad actors.  This is also true for Crypto/Bitcoin.
What I have learned by witnessing the greatest return…ever?
  • I have a small case of FOMO (fear of missing out), but then I think that I would have sold any Bitcoin(s) too soon and not have enjoyed the returns that have happened this year.
  • The trend is your friend.
  • You can make a ton of money buying before everyone else does.  Finding these rare investments/trades is very difficult.
  • I am not jealous of anyone making money.   I have my health, my family, and I “tap dance to work every day”.

No client, friend, or relative is calling me to put all of their money in Emerging Markets stocks or move all their money into Technology stocks.   Yes, the stock market is up but people are still slow to put money to work.  The last 17 years have made investors more conservative in their actions because they have been burned twice ( and the housing bubble).

Should I buy?

I got this question earlier in the year, but now it seems like I get it every day.  My answer then and today is “there are other ways to make money”.  With that said, if you need to crash the party then here is my advice:

  • I’d rather you buy cryptocurrencies than gamble at the casinos.
  • I am ok with you reducing discretionary expenses (i.e. travel, hobbies, etc.) and buying crypto with those savings.
  • If you have a surplus after funding your retirement goals, then by all means, go buy.

Buying Bitcoin or other crypto assets falls into the “get rich” bucket.  It’s okay to have this bucket; just make sure you have enough in the “stay rich” bucket.

You can achieve financial independence from being a successful saver and mediocre investor.  You can pass on Bitcoin and still become rich.  

More to come on this topic.