Is Bitcoin For You?

It’s no argument that bitcoin has transformed the life of its elusive founder, Satoshi Nakamoto. With his rumored 1 million bitcoin holdings and the US $ 10,101 price of a bitcoin based on Bitfinex as of writing time, US $10.1 billion can transform any life.

If I had known on November 26, 2016 that bitcoin will break the US $10,000 a year later, then I would have postponed buying an iPhone 7 Plus. Instead I would have used my P49,000 to buy bitcoin. My imaginary bitcoin holding now would be valued at about US $13,200. This extra cash would have transformed my life and the lives of the beneficiaries of the aklATIbaPa, an advocacy I founded in 2015 where volunteers go to schools to do storytelling and distribute books written in their mother tongue to children.

With investors from all walks of life, from Bill Gates and the Winklevoss Brothers to freelance writers, bitcoin appears to be the ‘in’ thing in investment circles. On the other hand, there are also luminaries including Vanguard Group founder Jack Bogle — the group has over US $4.5 trillion in assets under management — preaching against the bitcoin investing. To be precise, he said in an interview by Bloomberg, “Avoid bitcoin like the plague.”

Regardless of whether or not you’re planning on investing in bitcoin, it is prudent for any investor to understand what it is about.

What is Bitcoin?

In the definitive paper written by Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, bitcoin resulted from his vision of “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” This electronic payment system does away with financial institutions whose presence have been unavoidable since the first payment was made over the Internet. This also means that the transacting partners, the buyer and seller for example, can do peer-to-peer payment without involving a financial institution.

Unlike stocks, bitcoin has no underlying assets where its value can be based from. Its value then is partly based on the ‘hope’ that you, the current holder of the bitcoin, can sell it for a price higher than the amount you paid for it.

The fluctuations as wild as the distance between the crest and trough of waves in a super typhoon, are mostly based on demand, speculation, news, and rumors. Just look at this 24-hour price trend. The spread between the highest and lowers price within this period was about US $2000 which can drive investors with low risk tolerance away.

Investing in bitcoin is not for the faint of heart. As a matter of fact, Mark Cuban was reported to have said, think of the money you invest in bitcoin to have already been lost. If you are still eager to invest in spite of all of these, then read on.

How is the Value of Bitcoin Computed?

The current market value of a bitcoin is based on the average of bitcoin prices in leading bitcoin exchanges across the globe. This average price is then reported in the Bitcoin Price Index or XBP. This average price is the midpoint between the bid and ask spread.

For a bitcoin exchange to be included in the index, it must meet several criteria, which we will not discuss here since the focus of this article is on whether bitcoin is right for you as an investment vehicle.

How to Invest in Bitcoin?

If you have access to a smart phone with Internet capability, then buying and selling bitcoin is as easy as the click of a few buttons.

For Philippine-based investors, buying BTC is simpler and easier than ever. All Juan or Juana needs to do is download one of the more popular BTC app — coins.ph and Abra to name a few — and then register. The next step is to put real money in your virtual wallet which you will then use to buy bitcoin. There is no doubt that bitcoin is hot right now. For the average person like you and me, we need to exercise caution when buying bitcoin. Unlike Bill Gates or the Winklevoss brothers, our investible funds are the result of our blood, sweat, and tears and not from passive income. We want out investments to transform our lives for the better rather than for the worse.