Bitcoin, where is it headed?

Bitcoin is up 450% since my last post.

Last year in the month of May I wrote an article on here titled “Bitcoin, what is it?“, the purpose of this article was to introduce the concept in a easily explainable way to new users, but to also provide a simple resource I could direct people to rather than always having to explain the same thing to different people.

As always, whenever I write anything on Bitcoin, I get a bunch of private messages telling me how I’m wrong, how Bitcoin is stupid and will be worth zero, these messages only ever come from people who have never used Bitcoin before, I used to hear the same garbage from people about email, “why would I send an email when I can just post a letter?” or “why would I ever get an email address?, none of my friends have email addresses”.

The ironic thing is, that most of these angry people end up buying at the top of a cycle, I’ve witnessed this multiple times.

The industry coined term for these angry individuals is NoCoiner.

Bitcoin is going through one of it’s regular cycles, the Bitcoin price during my last article was $1500, by the end of the year it had reached $19,500, currently it stands at around $6,700, to put this growth into simple terms, lets say you had $200, you placed $100 into the Sydney housing market at the time of my last article and $100 into Bitcoin.

Today the housing market investment would be worth $95.50 and the Bitcoin investment would be $450.00, at one stage however the Bitcoin investment would have reached $1300.00.

Now here is the problem, if you simply ignored Bitcoin for what it is and only cared about it because all of your friends or colleagues were buying it and you had FOMO “Fear of missing out”, then you may have bought at the top, rather than after my last article, if this is the case, then hopefully you learnt a valuable lesson about market cycles.

Today, Bitcoin is in a bear market, so far it’s experiencing it’s 4th largest decline to date. Long term users of Bitcoin have seen this all before, however for new people it can be scary, especially when NoCoiners tell them “Bitcoin is going to zero!”, Bitcoin couldn’t actually go to zero, for the simple reason that there is enough people who’d happily buy up all the coins as they almost reach zero, these people would speculate that the price would one day rise again offering them huge returns. The big question today is where is Bitcoin heading? up or down?

up-down

At the start of the year, January 1st, I tweeted the following prediction.

So how did I predict the markets move? well, there was only two possible directions, so anyone could guess with a 50% chance of being right, you could say I’d be explaining my answer with survivorship bias.

My prediction was based on the simple fact that the price was going up way too fast, it was a speculative bubble, when everyone is making money on something, you know you’re in a speculative bubble. The best sign of this is seeing people entering the market who had zero interest in it previously, their only interest is making money, they simply enter because their friends who are also new to the market and have no understanding told them about their gains. Humans are herd animals.

Humans have a natural fear of missing out, if everyone else is having an orgy and you simply sit and watch then your genes won’t carry on, you’ll be removed from the gene pool. Put another way, imagine everyone is grabbing the latest weapons before a foreign tribe invades, but you get left with a stick, or everyone is having a huge feast but you’re not invited to eat, yet you know food is scarce. Well this in built FOMO flows over into investments.

Everyone else is buying, prices have risen, you better buy too before you miss out, you’d be mad not to buy now, everyone else is buying! prices are going up!. In this situation you need to ask yourself, what happens once everyone has bought? e.g what happens once everyone else owns a house? or at-least what happens when people start to sell and there is less buyers than sellers?.

With investing, like everything else in life, there is some great quotes that always make sense in hindsight, to me the most truthful quotes for investing are.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. ― Warren Buffett

And

“Buy when there’s blood in the streets, even if the blood is your own.” — Rothschild

These quotes are true because they’re obvious, when the herd is fearful to buy is when an investment is cheap, when the herd is all buying then the investment is expensive and big gains have already been had, it’s basic supply and demand, any kind of investment relies on having buyers and sellers, the best time to sell obviously is when there are buyers.

Everyone knows the saying “Buy low, sell high” but very few people actually follow this, most people want to buy high and will sell low, they want to buy high as everyone else they know is buying, they hear of others gains and panic buy, then when the price drops a little they panic sell, instead of blaming themselves they’ll blame the product they bought “stupid bitcoin, I bought it and it crashed” “houses suck!” “The stock market is rigged” etc.

These days I don’t tell anyone to buy Bitcoin, I don’t give investment advice, but I tell everyone to try it, to experience it. Several years ago however I would tell people to buy, I told one friend to buy at $180, he laughed and mocked me, late last year he contacted me telling me he was buying at $18,000, why? because “all his colleagues were buying” he “didn’t want to miss out”, he’d already missed out on 100x gains, he missed out on these gains because he needed someone to hold his hand and to validate his decision, he couldn’t take a risk and buy something early, he needed group support, this is how the majority of people are, unwilling to take risks, following the norm, then complaining that others got lucky.

Right now, people are fearful, there is blood on the streets, but is now the time to buy?. It all depends on what you’re buying for, Bitcoin can be bought and spent straight away, it can be used to trade peer to peer, it can be used for international transfers, where you buy it, send it to someone straight away in another country and they sell it straight away, this is relatively risk free, but what about as an investment?

Once again, everyone has an opinion, but no one knows for sure, however if you ask enough people, then at a future date you’ll be able to see at least one of these people were correct, but this is true of everything, everyone could be just guessing, so below is my guess.

How low will Bitcoin go? where will the bottom be? in January I was guessing $4,700, I simply plucked up this figure by looking at historical drops in previous Bitcoin bear markets, I guess that this drop won’t be as big as previous crashes, due to increasing liquidity and adoption each crash has been smaller than the previous, as an example Bitcoin once went from $1 to $30 in a single month then crashed down to $2, everyone was certain “Bitcoin is dead”, well not quite everyone, for the people who bought at $1 were sitting there thinking “this isn’t too bad I’m up 100%” however NoCoiners would scream at them “You’re an idiot if you don’t sell, Bitcoin is over valued at $2, only an idiot would hold thousands of bitcoin!”.

Fast forward a few years and there was the $1200 bubble, where it crashed to $150 over a period of roughly 13 months, this was a much smaller bubble, so far the “crash” from $19,500 to $6,500 has been the smallest crash to date, however the average person doesn’t do simple maths and rather react to big numbers instead of percentages.

Now, I could be wrong, Bitcoin could fall to $1500.00 or even lower, what do I know?, as I could be wrong on my upwards prediction. How high do I think Bitcoin will go?. Bitcoin is an experiment, for it to work as a store of value it only needs to go to somewhere around $100,000 to $300,000, but for it to work as a global currency, a currency with liquidity and stability, it needs to go to somewhere between $1,000,000 to $5,000,000.

I’m confident Bitcoin will reach six figures sometime in the next decade, I rate it a 50% chance, if it does reach six figures, then I’d give it a 50% chance of reaching seven figures in the following decade.

It is possible that Bitcoin forever stays a niche protocol, only used by a few million people, no one really knows, should an international standard be set by one country? e.g the US dollar where one foreign government is able to debase it at will? or should it be decentralized, a product of maths and born out of the Internet? what will future generations that grew up online think?

I don’t know, but here is my prediction that I can look back on in the future, will I be wrong?, will I be right?, what do you think? feel free to leave a comment below.

 

 

 

 

 

 

 

 

 

 

List of Billionaires that have invested in Bitcoin

Over the years, when the topic of Bitcoin has come up, I’ve had over a half dozen people say to me “if bitcoin was such a good investment, then why aren’t billionaires investing in it?”, when people have stated this question, it’s always been with a tone of smugness and they weren’t actually asking a question, but trying rather to sound so smart that they don’t need to learn anything…lol.

I know this because when ever I would respond “Multiple billionaires have, would you like me to list some?” I would always get a smug look and no response.
So anyway, I had someone mention this yesterday and now I was just sitting here thinking to my self “who off the top of my head can I actually name?”.

I’m sure there is many more than I can think of, not everyone is public with their investments, but anyway, here goes.

The below have all invested into the Bitcoin space, either directly holding bitcoin, or holding shares in Bitcoin companies. All are Billionaires in $AUD, several are multiple billionaires.

  • Richard BransonVirgin
  • Tim DraperVC – early investor in Hotmail and Skype, bought thousands of Silk Road bitcoins at a US government auction.
  • Marc AndreessenFounded netscape, today is a VC, early investor in Facebook, Twitter, Skype, Jawbone, AirBnB and many more.
  • Mark Cuban – Investor, author, television personality.
  • Mike Cannon-BrookesAtlassian Australia
  • Bill Grossbond manager
  • Mike Novogratzhedge fund investor
  • Thaksin Shinawatrabusinessman and former Prime Minister of Thailand.
  • Satoshi NakamotoNo one knows the true identity of the creator of bitcoin, but he is estimated to own 1.1 million bitcoins and has never sold one, today’s value is close to $3 billion AUD.

There is quite a few more who may very well be billionaires but if not, are certainly close to it and control VC funds with assets worth tens of billions of dollars.

Bitcoin, What is it?

Bitcoin, what is it?

While thinking of how best to explain bitcoin, I considered trying to explain the technical details in as simple terms as possible, but I come to realise that the average user doesn’t need to know all the complex code, just as the average webpage user doesn’t need to know about TCP/IP, packet switching and a dozen other complicated technologies that allow them to view a web page.

What I’ll attempt is to explain the design, think of this as someone selling the features of a new car to your grandmother, rather than explaining the whole ins and outs of the internal combustion engine, how the tyres are made, how the air conditioner works etc.

Bitcoin in 10 simple points.

1. Bitcoin is a decentralised network where participants of the network own bitcoins, no body owns the Bitcoin network, think of it like the internet, some have coined the term “the internet of money”, I’ve met people who don’t understand bitcoin and like many people when new technology comes along, they get on the defensive and make ludicrous statements like “The government will shut this down”, “if people lose their money, the bitcoin company should be made to pay up.”

When such statements are heard by the ears of an experienced bitcoiner, this sounds completely out of touch with reality, there is no company to “pay up” and there is no central server to “shut down”, bitcoin can’t be shut down, no matter how much violence, money or power a government has, there is simply no one to point a gun at, there is no server to unplug, the only chance of stopping Bitcoin is to turn off the entire internet, you can’t create a firewall and block it, it’s completely decentralised.

Before moving on to the below points, you must come to terms with this, I’ve seen people scream at conference speakers “The government won’t allow this!!, they’ll shut this down!!!” and storm out of the event.

The irony is, if the mentioned people had spent some time to understand the technology and had they even ended up being right, they’d have stood to make tens of thousands of dollars by shorting bitcoin.
Note: even if you hate Bitcoin and are certain it will fail, you can make a lot of money from it’s demise.

2. There will only ever be 21 million bitcoin, bitcoin is scarce, currently there is around 16.3 million bitcoins in existence, today 12.5 new bitcoins are created and accepted by the network every 10 minutes. Every 4 years the number coming into creation every 10 minutes halves, in the year 2020 6.25 will come into creation, in 2024 it’ll be 3.125, 2028 it’ll be 1.562 new bitcoins every 10 minutes and so on, this 4 yearly division will keep up until the year 2140 when all 21 million bitcoins have been created.

3. There is enough Bitcoin for every human in the world. There is over 7 billion people on the planet, yet there will only ever be 21 million bitcoin, how can 21 million bitcoin be enough? A single bitcoin is divisible to 8 decimal places, so a bitcoin is practically made up of 100 million smaller units. As a single $1 goes to 2 decimal places and is made of 100 smaller units that we call cents, a bitcoin simply goes to 8 decimal places, the smallest unit being called a “Satoshi”, named after the creator of Bitcoin.

Bitcoin works upon the principles of deflation, not to be confused with economic deflation, economic deflation is terrible in a society with only inflationary currency.
Bitcoins deflationary model is completely new to humanity and works well along side inflationary currencies, by acting as a store of value.

4. Any person or machine can send Bitcoin to any other person or machine they wish, you can send money to an Iranian, a North Korean, an American, an employee of Wikileaks, Edward Snowden, ISIS, Al Qaeda, George Bush, Tony Blair or any other terrorist, you’d be breaking a law, and could face criminal prosecution, but from a technical point of view, there is no way to stop you, Bitcoin isn’t like a traditional centralised payment service like Visa, Paypal, Mastercard, traditional banking etc, where a government or bank can choose who can or who can’t have an account. Your account can never be closed, it’s impossible by design.

5. Bitcoin never closes, it’s open 24/7 every day of the year, anyone can participate, in traditional banking, international payments can take 3 to 5 business days and for many banks these transactions can only be placed between the hours of 9-5, bitcoin has no sense of out of hours, the average transaction will arrive at the recipient in under 3 seconds, the network will have settled the transaction as final on average in 10 minutes.

6. You can send however much bitcoin you own to whoever you want, if you own $1 million in bitcoin, you can send this to anyone you want, no one can stop you, no one can ask you “who is this money going to?” or “how did you get this money?” or “what is this money being used for”. At first to someone who doesn’t understand bitcoin this could sound strange or scary, however with bitcoin, money is a content type, it’s completely digital, it’s the money of the internet, it’s the internet of money, look at it like email, or a file type like a jpeg, mp3 etc, who can stop you sending an email? or sending a jpeg?, once you start to see bitcoin as a content type, it’ll all make sense.

When the world wide web first appeared on the internet, many people were disgusted at the idea that any person could publish articles online, these people were used to only government backed newspapers having this right, any individual having as much power to publish as a newspaper sounded crazy, today most people view internet censorship as far more crazy.

When the printing press first appeared, if an average person was found in possession of one, the penalty was death.

7. Bitcoin is a store of value, if bitcoin succeeds and more people start using bitcoin over time, the price must rise, this is due to the scarcity of bitcoin and it’s divisibility (to 8 decimal places).
One of the first transactions online was a guy buying pizza off another guy, he paid a guy on a forum 10,000 bitcoins to order him 2 pizzas, today 10,000 bitcoins is worth around $20 million AUD, at the time though there wasn’t that many people using bitcoin, so the several million bitcoins in existence were divided up amongst several thousand users.

Today it’s estimated there is between 6 million – 12 million owners of bitcoin. With bitcoin being both scarce and popular, bitcoin has to be divided up, 2 pizzas today could be bought for 0.02 bitcoins, rather than 10,000 bitcoins, in another 5 years, if the bitcoin network keeps growing at the current rate, the price of 2 pizzas could perhaps be 0.00001 bitcoin (or insert random guess here).
As you can probably work out, if you got into Bitcoin several years ago and held onto your bitcoin, today you’d have made considerable money.

8. Bitcoin cannot be copied, many people are confused with this at first, we’re used to anything digital being easily copied, think music, photos, documents etc, bitcoin though cannot be copied, on hearing this for the first time, many people have rolled their eyes, they think of DRM (digital rights management) which has often been hacked and proven floored.

What makes bitcoin impossible to copy is that a bitcoin doesn’t exist as a copyable coin, All bitcoin is, is a row in a database, in bitcoin we call this database The Blockchain, in this database there is a row that says this address owns x amount of bitcoin, thousands of computers on the network keep a copy of The Blockchain, so if you wanted to modify a row in this database to say you own more bitcoin, then you need to convince the thousands of computers of the network to update their copy of the Blockchain, this isn’t possible, due to the cryptographic nature of the blockchain.

What you own as a bitcoin owner is effectively a password that proves to the network that you own the said row in the database, this is known as public/private key cryptography, I won’t go too much further into the technical side as it’ll lose most people, all you need to know is that your phone app keeps hold of this private key (password) behind the scenes and signs cryptographic messages to the network, eg “Give $5 of bitcoin to John, from my account, here is proof that I own this account” then all the computers on the network validate that you own that $5 and they update their copy of the database.

The smartest minds in Cryptography have gone over the code of bitcoin and
everyone has come to consensus that bitcoins cannot be copied.

9. Bitcoin is freedom.

10. Bitcoin is a high risk high return investment.

You can use this link to buy bitcoin and we’ll both earn $10 in bitcoin, however, I’ll write further articles in the near future on whether or not I think people should buy bitcoin and how much, I’ll also cover how to securely store your bitcoin with a Trezor.