I decided to buy Bitcoin twice. The first time was in 2019. I chickened out and sold my holdings without gaining or losing much. Last year I bought again, with more resolve.
I’m usually fairly risk averse. But I decided I needed to take a few more risks so 2020 I invested a small amount in a fraction of a Bitcoin. A week later I did the same thing. When I bought in, the price of Bitcoin was a little over $15,000 (although each time I bought only a fraction of one Bitcoin).
I told myself I would hold for the long run, or at least until the next price spike. I didn’t have to wait long, as the next graph shows. When I sold my fractions a few months later, the price was around $45,000. I had almost tripled my money.
The emotions of it all
I admit I checked the price a lot. As Bitcoin rose I was worried it would go down. I held out as long as I could but sold before it peaked (at over $53,000!). After I sold my worries were not replaced with calm. Instead I worried it would go up even more. I couldn’t shake the feeling that I was going to lose.
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A better investor would probably have sold some and kept some. I promised myself I would do that but in the end couldn’t. I feared losing my gains (which at the time existed only on paper) too much. If Bitcoin goes up to $100,000, you can be sure I will be furious at myself!
What’s Bitcoin for?
Do I really believe in Bitcoin? Not really — with one caveat.
Admittedly, I have developed a strong track record of disbelieving in radical new companies that later proved successful. Among the many things I’ve deemed silly are Tesla and Afterpay. Tesla is up 20-fold since I started mocking it and Afterpay sixfold. I even scoffed at Apple’s over-reliance on the iPhone. Those were costly scoffs. If I’d invested in those companies I could be in early retirement.
I believe it’s OK to be wrong as long as you learn from your mistakes. So I decided to invest in another thing towards which I had directed my sober opprobrium. I became a Bitcoin investor.
Well a Bitcoin speculator really, because I don’t really think it’s the future of currency. I do think it might be an object of occasional speculative frenzies. And if there was another speculative frenzy in Bitcoin it would have killed me to be watching from the outside. I wanted to be part of it.
Bitcoin was invented in 2009 by a person or persons unknown, operating under the name Satoshi Nakamoto. Nakamoto published a “white paper” which, if you’re interested, is short, readable and available online. The first words are “Commerce on the internet …” and the paper is devoted to inventing a form of payment.
But Bitcoin hasn’t turned out to be a good way to pay. It has, however, turned out to be a good investment. It’s not used for mainstream payments but is increasingly held as an asset by mainstream investors.
The one caveat I mentioned earlier — the one mainstream and sensible reason to invest in Bitcoin — is the possibility that with its limited supply it could be a good investment in a time of inflation.
Over the past dozen years, inflation has been hard to find. House prices have gone up a lot, but consumer prices have not. Conventional economic theory would say the huge stimulus that has hit the economies of the world during the pandemic could drive up inflation — especially combined with disruptions to supply chains.
Central banks usually use high interest rates to rein in inflation. But with the enormous stock of debt afflicting the world, raising rates could be very damaging to households and businesses. Central banks are more likely to let inflation run a bit than to clamp down on it early. Both the Reserve Bank and US Federal Reserve have made formal promises not to stamp out inflation when it occurs but to let it develop before they act.
Indeed high inflation is one way to make debt loads more affordable — high inflation might be part of how economies recover from the pandemic. But for individual investors it can be tough to find assets that perform well in times of inflation. Gold is one. Bitcoin is possibly another.
If US inflation results start coming in high there could be a real case for investing in Bitcoin. The most recent US inflation result was a desultory 1.4% annual rate, so it hasn’t happened yet.
Would I buy it again?
You bet. Bitcoin has had several massive spikes in its life, as the chart above shows. My assumption is the pattern will repeat, and I would certainly consider buying if the price falls again. But of course the pattern could shift. I’m glad I invested, but also glad I invested only as much as I could afford to lose.