Is Bitcoin a profitable investment?

What is Bitcoin?

Bitcoin is a decentralised form of private money. It is a public ledger (database), which can be used by anyone to transact coins or money which are called Bitcoins. This ledger is updated in such a way that malicious entries cannot be inserted. The users of Bitcoin all agree on the state of the database.

There will only be 21 million bitcoins and each bitcoin can be divided into 100 million smaller units. The Bitcoin monetary policy is copied from that of mining precious metals. Where some are created every year, but eventually they will run out. See the original Bitcoin Whitepaper

Should you invest in Bitcoin?

That decision is very personal as each of us have different financial goals and risks. There are three main groups of people currently investing in Bitcoin. The tech heads are fascinated by the technology and investors are in Bitcoin to make money or protect what they have. The third group is criminals, it is coming to light that this group is much smaller than initially thought.

Is Bitcoin something you should own? You can explore this idea, by considering the pros and cons of Bitcoin investments. How do they apply to your individual situation? Make your own SWAT analysis of Bitcoin.

Is Bitcoin profitable?  – Positive Arguments

Technical

  • All the pros of Bitcoin are not known, Bitcoin is programmable money. The first software every created used punch-card machines but modern software controls the trajectory of satellites and surgical robots. What will the software running Bitcoin evolve into. No one knows for sure.
    A secure bitcoin wallet. Trezor.

     

  • Transactions cannot be reversed for any reason.
  • The technology behind Bitcoin is cryptography if this tech “breaks” then Bitcoin breaks, with current technology this cannot be broken. (yet)
  • The bitcoin system has been up 99.99% of the time. (http://bitcoinuptime.com).
    Protection From Payment Fraud

Investment:

  • Safe investments do not make people rich, investments have a risk and reward ration. The lower the risk the lower the reward. Bitcoin is high risk but it is also a high reward investment. Bitcoin investors consider that the Expected Bitcoin Gains Are More Than Expected Bitcoin Losses at this point.
  • Enormous amounts of money have been invested in Bitcoin’s infrastructure, such as exchanges, debit cards, special wallets, legal and blockchain innovation. Each new piece of Bitcoin infrastructure makes Bitcoin more profitable to invest in.
  • Bitcoin has demonstrated weak correlation with other asset classes. This makes interesting to hold as a hedge when other asset classes are facing distress.
  • Bitcoin is deflationary that is the opposite of inflationary. Bitcoin is scarce and the more people know about it and want it, it will become scarcer. The scarcer an object it the more valuable. Bitcoin, unlike FIAT money, cannot be created out of thin air.
  • Bitcoin is recognised in all parts of the world.
  • Bitcoin is neutral, other currencies are not. The value of National currencies is a measure of both political and economic situations. Bitcoin is math, and math is apolitical.
  • You can also buy gold with Bitcoin.
  • Read more: Bitcoin can reshape our financial system

Resilience:

  • Bitcoin is different than FIAT money. FIAT money is managed by a complex ecosystem of governments, regulators, banks, and wire transfer systems. Bitcoin is a decentralised network which does not need third parties to function.
  • Using Bitcoin transactions is simpler, cheaper and easier than online banking.
  • Bitcoin is easy to carry, you can also keep it in your head.
  • Bitcoin is one of the very few instruments available to the common people to protect themselves against the currency wars. The currency wars are a competitive devaluation of currencies between nation states.
  • Bitcoin will be the only form of cash available after the war on cash is won by those who want to ban cash.
  • Bitcoin is not subject to money printing or quantitative easing. Meaning that no more bitcoins can be created.
  • Bitcoin is not subject to negative interest rates.
  • Bitcoin cannot be easily locked down unlike other forms of capital.
  • Bitcoin has been proclaimed dead many times but it keeps coming back.
  • Read more: Bitcoin cannot be tamed.

Integration

  • The war on marijuana has been fought for decades. The demand for it, never went away, if there is a demand someone will supply it for the right price. Bitcoin could eventually follow the same path, banned at first, however, Governments will compete to integrate within their economies to get a share of the benefits.

Is Bitcoin profitable?  – Negative Arguments

Bitcoin is made illegal.

Crisis Scenario:
States and their bureaucracy do not look kindly on threats. Bitcoin is a nuisance today, but its power is growing as more people acquire it =, use it and understand. This is the network effect; it makes the decentralised money stronger.  Read more Bitcoin is getting Bigger.

The Economic crisis is a question of when not if, it is the depth of these crises that it is unknown. The deeper the crisis the deeper the search for a safe haven by those most severely hit.

Solutions outside of the system cannot be managed by the system. The system will see this as a threat and the full force of the Government will come to anything that falls outside of its control in desperate times.

Governments will try to regain economic strength by keeping funds circulating within their economy rather the leaking to safe havens. Those who disagree with such policies will be breaking the law and their tools and instruments will be made illegal.



National CryptoCurrency Scenario:

Several national governments have hinted and turning their national currencies into centralised digital currencies. Bitcoin will be classified as a competing currency rather than a complementary currency.

Some countries use USD as their de facto national currency, in others USD is readily accepted in most shops. This creates demand for USD and makes it stronger. If the USD losses stability some countries could turn to Bitcoin, something which the USA will probably not like too much.

Read more: Christine Lagarde, IMF chief on Cryptos

Technology

  • Bitcoin’s value could be superseded by other coins that can provide more value. At this time Ethereum is a cryptocurrency which is more programmable than Bitcoin. Dash is a cryptocurrency with more robust governance. See: Bitcoin has competition.
  • Quantum computing will create stronger computers and these could eventually break the cryptography of Bitcoin. This is a cat and mouse game and probably Bitcoin will migrate to stronger cryptography before this becomes a danger.
  • Bitcoin maximalists consider that all altcoin functionality will eventually be integrated in Bitcoin.

Marketing

  • Bitcoin does not have a marketing budget, and this makes it vulnerable to entities who do not like it and have a marketing budget.

Governance

  • Bitcoin’s rules need to be updated from time to time. In order for Bitcoin’s decentralised ledger to work, the rule book needs to be the same among all the participants. There are three main participants in the bitcoin ecosystem the users, merchants, miners and developers. They all have different interests and balancing them all has proven difficult in the past, this has led to Bitcoin forks. Meaning a new Bitcoin is created.

Markets

  • Bitcoin has been going up, ever since it was created, this was not a straight line, but the trend has always been to the upper right.
  • The price of Bitcoin is volatile can fluctuate by 30% in one day, both on the upside and the down side.
  • Many Bitcoins are hoarded waiting to be sold at the right price, as Bitcoin investors grow bolder the prices at which investors are willing to sell goes up. This makes the price of Bitcoin go higher, which has the effect of more exposure but making some people feel they missed the boat.
  • Bitcoin and cryptocurrency markets are governed by exchanges and these are unregulated, in most countries. This can result in market manipulation, which creates incorrect valuations and leads to stronger corrections and bad press.
  • Panic selling and pumps and dumps make certain market participants rich and others poorer.
  • Some Bitcoin investors assume that they will pull out just in time. This is called survivor bias and leads to losses.

Human Error

  • Banks cushion user from money mistakes. With Bitcoin, the user is the one and the only responsible, if you lose the keys to your Bitcoin, it is gone and it cannot be retrieved.
  • Falling for Phishing scams or installing software which contains trojan horses and viruses may lead to Bitcoin losses. These may attack your Bitcoin wallet or replace a Bitcoin address in your clipboard resulting in you sending the funds to the wrong recipient.
  • There are too good to be true investments with Bitcoin, still some fall for these schemes.

Hackers

  • Hackers have attacked exchanged and stolen funds.
  • Hackers can attack networks and limit the transfer of Bitcoin from one place to another.
  • The Bitcoin network itself can be spammed and transactions delayed.
  • Read more: Failure is an option

Conclusion: Is Bitcoin a profitable investment?

Investing: expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.

Investment: the action or process of investing money for profit or material result.

Is holding Bitcoin is a financial swiss knife. People have different reasons to hold and use Bitcoin, just like any other investment vehicles it is a tool with a certain set of features.

These features have value according to the current and possible future contexts in which people have to live. Is Bitcoin is a worthwhile investment? You can answer this question by thinking what will your country of residence look like in 1/2/10/20 years time.

Still Hesitating? Here is a thought skip the double vanilla coffee, the cigarette or that extra beer and spend that money in Bitcoin. Create a wallet transact with yourself to get a feel for the system.

Image Copyright Image 1 Image 2

Looking forward to your comments:

  • Have you invested in Bitcoin? Why?
  • Which positive and negative arguments do you agree or disagree with and why?