What if Bitcoin is not a fad?

I know this is a site about side hustling, mainly in pursuit of FIRE, and a lot of personal finance folks aren’t big on uncertainties like cryptocurrencies and bitcoin and such, but I feel the need to address or at least provide a point of view on this.

What if bitcoin is for real?

The PF and FIRE mantra is simple. Earn more, spend less, invest the rest. The primary investment vehicles kicked about on PF sites are mainly investing in indexes, real estate/airbnb, or creating several side hustles to supplement income.

Anything else is largely met with disdain and a high level of cynicism. There’s not a right or wrong approach about this, and everyone should go into any investment/new opportunity with both eyes wide open. So i wanted to talk a bit about bitcoin.

History of Bitcoin

Now, Bitcoin really came into mainstream attention in 2017, when it went from close to $1,000 to touching $20,000. But Bitcoin has really been around for 10 years, since 2009.

I’ll tell you what’s a fad. Fidget spinners are a fad. They came, they conquered, they whimpered. All in the space of maybe a year. Bitcoin, on the other hand, has only grown from strength to strength over the last decade.

Many people like to point out that “look, bitcoin fell from $20,000 to $4,000. It is done. It is dead.”

What a lot of them don’t know, is how volatile the entire history of Bitcoin has been. Prior to the crazy 2017 run up, in early January 2013, the price of Bitcoin was around $33. By November 2013, it ballooned to $1,000! The Mt. Gox implosion then brought that back down to $250, an incredible 75% pull back.

But each time Bitcoin does that, it gets stronger, and more and more people find out about it. Awareness spreads, supply doesn’t. What happens in these scenarios?

Support and Resistance

Notice how each time Bitcoin crashes, their new price floor, is still above the previous high? In the run up of 2013, we started the year at $33, flew up to $1,000, and landed back at $250. If you held through that, you’re still up almost 10X.

January 2017, Bitcoin started the year at $750. That crazy year ended at a high in November of $20,000. 2018 marked a year of losing steam, but even with losing maximum steam and a correction of 80ish%, 2019’s low is still way higher than January of 2017.

Today, Bitcoin just took back $5,000, and it seems like $5,000 is now a comfortable support level for Bitcoin. I know past performance is no guarantee of future performance and all that, but what if trends continue? Are you willing to let this slip by?

Mega Bitcoin Bull

There are many bitcoin bulls out there with the preposterous claims that Bitcoin will go to $1,000,000. What if they are right?

Let’s look at the upside/downside argument to this.

Let’s say today, I invest in Bitcoin. I’m a skeptic, so I’m only going to put in USD$1,000. At today’s price, that gives me approximately 0.2BTC.

Worst case scenario: Bitcoin goes to zero. Blockchain disintegrates, and Elon Musk dies of a heart attack, dooming us all to being an Earth-bound species. Your investment of $1,000 goes to zero.

Middling case scenario: Bitcoin survives, neither dwindling nor striving. Some use-cases still provide BTC with some value. Price of BTC hovers between $3,000 to $6,000. Your investment is sometimes underwater, sometimes over. We’ll take it that you will withdraw it out when you’re at breakeven.

Bull case scenario: Blockchain takes off, and BTC is the mother of cryptocurrencies, and holds a store of value, and a gateway to other blockchain applications. BTC value is between $10,000 – $100,000. Your investment is gravy, picking up anywhere from 2X to 20X.

Mega Bull scenario: Bitcoin takes over gold as the dominant store of value, besides opening up many use-cases of international transfer of value. Widely adopted as both store of value and daily currency use, triggered by the fall of the Venezualan Bolivar, and other sovereign currencies resulting in a loss of confidence in central banks and centrally governed currencies.

If Bitcoin does take over gold as a store of value, that implies ~ $400,000 BTC. Let’s say over time, it’s value rises to $1,000,000 because in addition to replacing gold, it also has utilities and functions.

In this scenario, your $1,000 investment in April of 2019 will be worth $80,000 as it takes over gold, and $200,000 if those mega bulls predictions come to pass.

My view

Here are my thoughts on this:

• BTC has been around for 10 years, and hasn’t died. It probably won’t.
• Each time it rises phenomenally and crashes, the price floor following the crash has been higher than the previous floor. Consequently, each price peak has been multiples higher than the previous price peak.
• We are still in price discovery mode. If people were happy to buy at $20,000, the next move up will go beyond $20,000.
• All this time, scarcity is still a factor. There will ever only be 21 million BTC produced. (Even less if you consider the ones that are forgotten and lost) A fixed supply with an ever increasing awareness and demand will drive prices up.
• Bitcoin is fractional. A lot of people don’t know, or can’t wrap their heads around this. And the word coin doesn’t help, because a coin implies a low value. But you don’t have to own a full BTC. You can have 0.00000001 BTC, and that’s the smallest unit of BTC. It’s called a Satoshi. As the value of BTC grows, the fractional value simply grows as well. If 1 satoshi eventually is equivalent to $0.10, the value of BTC will be $1m.
• Bitcoin has grown, and not declined, over the last 10 years, and its trend is still growing if you extend the chart out to it’s lifetime. The Bitcoin ecosystem is also growing in spite of the huge price reduction.

With all of the factors weighed in above, I am more than happy to put in $1,000 into Bitcoin today, and see where we’re at 5, 7 years down the road.

My absolute worst case is I lose $1,000. But the potential upside? That’s still open to discovery. To me, that’s a no brainer.

What about you? Are you a Bitcoin bull or bear, and did reading this change anything for you?

Disclaimer: I am drinking the koolaid, and holding on to some Bitcoin, Litecoin and Ethereum.