- Investing in bitcoin
- Who is Tim Draper
- Buying and holding Bitcoin
- HODlers phylosophy
- The Bigger Picture
One of the questions I am asked on a daily basis on Quora is whether Bitcoin is still a good investment for the year 2018? In the last 2 weeks, we saw an abrupt correction all across the cryptocurrency board as a series of regulatory measures were deployed by the government and banks.
Some cryptos saw a rapid decline as much as 80% of their original value while Bitcoin dipped to as low as $9,000 before rebounding to $11,000. Bitcoin climbed to as high as $20,000 in late 2017.
It is now apparent that the latest downswing was just a major correction taking place. Wall Street strategist Tom Lee forewarned back in December 2017 that it was bound to happen. Market overvaluation had been anticipated and now this recent correction has removed “weak hands” from the market.
Bitcoin price drop is ‘very healthy’. Fundstrats Tom Lee to Bloomberg.
Lee says, “If anyone says that Bitcoin is trading on pure speculation, they haven’t done their work,” he continued, citing research compiled by Fundstrat in recent months.
Bitcoin is not a product, company or stock, it’s the first of its kind experimental Peer-to-Peer Electronic Cash System, just like how the internet was back in 1993. Back then the World Wide Web had only a total of 130 websites in the entire world.
If you still fail to see what the whole fuss with Bitcoin is, then watch this video:
This video was the reason why I got into Bitcoin in the first place. A whole new world of possibilities started emerging as I delve deeper into this revolutionary technology.
Bitcoin is also not a Get Rich Quick Scheme. The whole mushrooming industry started around it simply because of the notion that Bitcoin could decentralize our entire banking system.
Also read why Centralization breeds Corruption: https://coinzodiac.com/bitcoin-vs-blockchain/
Hence, when you’re buying into Bitcoin, you’re actually buying into the whole idea that our financial systems and fiat currency will one day be displaced entirely by cryptocurrencies.
‘In five years, if you try to use fiat currency, they will laugh at you. Bitcoin and other cryptocurrencies will be so relevant … there will be no reason to have the fiat currencies’. Tim Draper, Billionaire Investor and Bitcoin Owner.
Who is Tim Draper?
He made over $1 Billion by getting in early on Twitter, Skype, Tesla and many more companies. During a Major Tech Conference in Lisbon, he told Forbes of the potential Bitcoin is bringing to the world.
So what does it mean to actually invest in Bitcoin? Are you buying it in hopes that one day it will appreciate in value? Are you just looking to day trade to profit from its extreme volatility, or are you simply looking to invest in the technology behind Bitcoin which is Blockchain?
Here’s what I think about:
Buying and holding Bitcoin (hodling)
This is one of the oldest Bitcoin investing concepts that spread like wild fire. It all started when a forum member on Bitcointalk.org misspelled the word HOLD for HODL.
Unlike trading in Bitcoin whereby it is held for a short duration of time and then sold at a higher price, hodling as it is more popularly known involves buying fungible Bitcoins and then keeping it for an extended period of time.
Later on, people started to define it as Holding On for Dear Life (HODL)
You see, when bitcoin first started appearing on every news outlet and media back in 2013, “the so called experts’ were skeptical and labelled it as a hype bubble or simply the greatest pyramid scheme the world has ever created.
Mt. Gox, the biggest Bitcoin exchange site was hacked and hundreds of millions of dollars’ worth of Bitcoin was subsequently stolen from the general public.
It was also used prominently as a currency to purchase illegal drugs and pornographic material on Silk Road and Utopia.
Then to add salt to the wound, Flexcoin a Bitcoin bank announced that its entire user database vanished into thin air.
Bitcoin was practically dead in the water. No one thought it could survive all those pitfalls, after all the technology was still in its infancy.
However, something good did arise from the ashes of defeat; a group of people remained loyal and more convinced than ever that Bitcoin would still be the future of a one global Decentralized financial currency.
The price of a single Bitcoin was around $700 in 2014.
These true believers weren’t just into Bitcoin for the speculation and profit of the currency value; they somehow believed that holding a Bitcoin would make them an active participant of a bold new future.
They stayed on despite all the bad publicity on the mass media. And today, those early HODLers of Bitcoin became multi-millionaires, even if they just put $30 into Bitcoin in 2010, or $1000 in early 2012.
So if you were thinking that the latest major crash is harsh, think what happened a few years back and why each obstacle made these group of people even more fervent and loyal for Bitcoin.
In fact, by this site’s count, Bitcoin has already been pronounced dead 245 times since 2010.
Most Bitcoin Whales who have millions of dollars’ worth of Bitcoin wouldn’t sell a single fraction of their cryptocurrency no matter what the price is unless they need the money.
The cryptocurrency market capitalization right now has a market cap of $555,469,955,691. But there’s a conservative estimate of $90 trillion worth of fiat currency in the world. For the crypto market to even reach half of the $90 trillion, would mean that the price of crypto would need to be another 100X more than where they stand right now.
There’s a deeper underlying philosophy that HODLers believe that will keep pushing Bitcoin’s price higher and higher, perhaps indefinitely until the U.S. Dollar is virtually worthless.
This comes from some of the worst inflations in history like the Zimbabwean dollars or the German Marks.
Both currencies were not backed by any gold or silver and they were printed until they literally lost all of its original value. The German Marks for example lost 99.99% of its value in 6 years, whereas the US Dollar is gradually losing its value, and has lost over 96% of its value since 1913.
Why 1913? Well it was the year that marked the formation of the Federal Reserve Central Bank of the United States of America. And ever since that pivotal point in our monetary history, banks all over the world have followed this exact same model of the Fractional Reserve Banking system.
Why do you think there are so many powerful people against the idea of Bitcoin? They instead choose to support the technology behind Bitcoin which is Blockchain.
Bitcoin on the other hand does not require any central authority to govern it. No one central authority can print out as many Bitcoins as they like, or to electronically duplicate and add more zeros behind.
It has a maximum supply of ~21 million Bitcoins, a limit written into the code that governs the entire system. It does not need a central figure like a bank to verify whether a transaction is valid or invalid because it has cryptography built-in to secure the code. No one can ever hack into the Bitcoin code.
Now if you’ve read that Bitcoin was hacked, it was the exchanges that hold the currency that were being hacked.
Now just imagine a central place like a bank holding all the money in the world, would they become a target for crooks?Yes they certainly would. Heck, banks get robbed all the time.
The whole idea of decentralization is to be your own bank, store your Bitcoins in your own Hardware wallet like a Ledger Nano S. That’s how I keep my Bitcoins.
So at the end of the day, limited supply and limitless demand accelerates the price of Bitcoin. HODLing and the cap limit of 21million continue to keep the supply low and that in turn drives up the value of Bitcoins in the long run.
At the moment, the Fear, Uncertainty and Doubt perpetuated by the mass media are just playing into the hands of financial institutions around the world.
So what are the other incentives of holding on to Bitcoin?
In the U.S., if you hold your Bitcoins for at least a year, you can pocket your profits as long term capital gains, which is taxed lower than that of short-term trading gains.
However, there are certain countries like Switzerland, Hong Kong and Singapore which offers zero tax on long term capital gains. Short and long term holding of Bitcoins is determined by the length of time which you keep and the frequency of your trades.
Read about it here:https://coinzodiac.com/make-money-bitcoin/
The Bigger Picture
The U.S Dollar will eventually spiral out of control and suffer high rates of inflation. It is not a matter of “if” but “when”. This is guaranteed because of the current spending habits and debt.
The U.S debt alone is at $20.24 trillion. This is the real bubble waiting to explode. Not Bitcoin.
And when it happens, hyperinflation will make any dollar you hold practically worthless. We can see this time and time again throughout history.
…And this would ultimately lead to a Bitcoin-induced Demonetization called Hyperbitcoinization.
Hyperbitcoinization could lead to a mass adoption of Bitcoin and become the de facto currency of the future. Countries like Japan havecompletely embracedBitcoin as a legal payment method.That is a pretty smart move.
So those who have HODLed their Bitcoins would ultimately owe no capital gains taxes. Why?
If your U.S. Dollar rises in value today, do you pay taxes on it? No, there’s no capital gains tax for a currency.
Even if they tried to tax the profits you made out of Bitcoin, hyperinflation would have made the dollars worthless.
Having said all of that, I must assert that buying Bitcoin as well as other cryptocurrencies is very risky and should not be taken lightly. Using a credit card or a mortgage loan just to buy and profit from Bitcoin is highly irresponsible to you and your family. Only invest in what you can afford to lose.
Start reading and educating yourself about Bitcoin today, read the book written by Andreas Antonopoulos called the Internet of Money. Watch his videos on Youtube and I can guarantee you it will open and change your mind