Should you invest in cryptocurrencies?

Bitcoin – the little big kid on the block. Everyone is talking about it, half of my friends hold some, even my mother wants to buy some.

First – What is Bitcoin (or *Coin)?

I became interested in the whole bitcoin phenomenon back in 2011, when my geeky friends were discussing it as a technical subject, in university. The concept of a “coin” recorded in an immutable ledger was very interesting. The concept of “decentralized currency” was again, something new.

For those who don’t know what the blockchain brings, imagine having the full transaction history of an entire currency, public, and almost impossible to change. The blockchain is not limited to creating currencies, but various other record-keeping and data storage use cases. This concept was invented in 2009 by somebody under the alias of Satoshi Nakamoto.

Why is it useful? Well:

  • We don’t rely on the governance of a single entity (bank). Everyone is a node in the network.
  • The system is transparent to everyone. This answers the question “How much money does X have?”
  • The history of the ledger is transparent as well. That answers the question “Where did this money come from?”

Bitcoin is one asset that was built on top of the blockchain technology (Litecoin, Ethereum and Ripple are others). Each of these coins bring their own pros and cons at the table, and each new coin is trying to fix issues with previous coins.

When I first looked into Bitcoin, MtGox was the largest exchange and platform allowing people to buy and sell bitcoin. As the price was low enough, I remember buying some. And I’m saying some because I did not keep records of what is where. Stupid, I know. I will come back to this point later in the post.

Next, why the huge interest into it?

So far, I can think of two reasons why there’s hype around the blockchain and cryptocurrencies. This is just my interpretation, and I would welcome any feedback or suggestions to it.

First of all, it’s the “only if I’ve invested earlier” mentality. There are a few people who bought bitcoin years ago, and their assets grew by 100/10000 times. And for every such person, there is a crowd of easily impressed people, which would jump with their savings at the opportunity. Everyone is wishing that the growth continues at the same pace, and that they will be able to retire in 3 years.

Second, the herd mentality is getting mixed with large marketing budgets. Every other day, while scrolling on Instagram I am prompted with a new ICO (Initial Coin Offering – some new company developing something on blockchain), and that I should invest before it’s too late. Some people look at these ads, think that their growth potential is the same as Bitcoin’s, and jump in.

Now – do I own any cryptocurrencies?

Yes. I have acquired them in three phrases:

  1. 2011-2012. I have lost all of them, as MtGox went bankrupt with the client holdings in it. I have no record of them, but I believe I had over 10 BTC in that account.
  2. 2013, when Bitcoin started going up. I bought minor amounts – under 1BTC. I paid about £100/BTC. That is currently stuck in a wallet, but I have plans to sell them.
  3. 2017, when my mother visited and told me she would like to invest in Bitcoin (!?!?!). After a face-palm and a long explanation that Bitcoin is not an asset, nor investment, I have invested in a basket of cryptocurrencies. I am currently using ICONOMI to diversify my holdings – see this basket as an example.

Last – should you invest?

I should emphasize two things.

One, which is also mentioned in the sidebar of this blog: The content posted on this website represents an opinion, and should not be considered professional advice. Seriously, do your own research before deciding anything with your money.

Second, I see a key difference between “investing” and “speculating”. As Mr Tako explains in this blog post, the difference between investing and speculating is closely related to the difference between “asset” and “commodity”. Bitcoin, in my opinion, is not an asset; it is a value-carrier, such as a gold bar. You can buy a cryptocurrency hoping it will go up, and it may; however, it will never actually generate income (no dividends, no coupons, no interest).

If you are passionate about the blockchain technology, buying bitcoin may not be the best way around it. There are 2 ETFs that I am aware of (BLCN and BLOK), which buy shares in companies which use the blockchain technology. This may be for coins, or for any other use case- but this is the simplest way to bet on the technology itself.

If you believe that bitcoin will go up, and don’t care about any other coin, only invest an amount that you can afford to lose entirely. The bitcoin markets are not regulated, and there is no one to call, e-mail or sue if your coin value goes to 0. If you’d like to go ahead with looking for an exchange, a good starting point is looking on the CoinMarketCap Bitcoin page.

If you believe cryptocurrencies have a decent chance of replacing the fiat currencies, and would like to have diversified exposure to the market, you will need to build a portfolio of multiple coins. Or, you can buy into these on a website such as ICONOMI. Through these portfolios, I currently have exposure to 49 different cryptocurrencies.

To answer the question: if either of the 3 approaches matches your interest, then yes, you should look into it.  Personally, I will maintain part (5-10%) of my portfolio invested in this asset class, at least in the near future.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.