Bitcoin - what the heck is it and should I buy some??

Hi Gang,
I figure someone on here knows something about bitcoin. I read a few articles and will watch an AARP video or two to try to learn more.

I am a low-rolling slot player and sick of the meager returns. Thinking maybe it could be fun to put a few hundred bucks into this and see if it pays off. I don't know how it works and how you withdraw any of it so all opinions and help are, as always, greatly appreciated.

 

I would probably stick with things like mutual funds, to be honest. I've dealt with the issue professionally, and have close friends who are subject-matter experts, and I still don't fully understand it. Not to mention, from what I've read, there's a lot of volatility due to people instigating on Reddit and the like.

EDIT: This is neither legal nor financial advice, for the record.

 

Thank you, 44inarow! Yes, I know anything on here is just chatter and certainly not advice but your answer has been helpful. I'll stick to my funds and goof off with my slot playing

 

Call me Schultz 'cause I know nothing, except what I've read. I've never understood much about it nor do I care to. I'd say 44 hit the nail on the head. I've never read anything positive from a reputable advisor or firm. Not one article. So you might be better off stuffing that mattress, unless it's foam.

 

I've been to a few lectures that dealt with the technical, financial and social aspects of cryptocurrency, and I have yet to hear anything that indicates it's a good growth investment.

It does have some utility as a medium of exchange, however.

The latest I've heard about Bitcoin, specifically, is the lengths some will go to in order to "mine" it. Anyone can "mine" it using a well-known algorithm to identify the "unmined" Bitcoins that are out there using basically a plain vanilla PC, but some have set up very elaborate "farms" of machines which use a LOT of electricity and human resources. The last I heard, it was costing between $5000 and $10000 or so to find each new bitcoin, but the exchange rate has been hovering around $30000 or so, making it cost-effective to do so.

 

What the heck is it - Bitcoin is a currency. Like (US) Dollars, Euros, (Chinese) Yuan or (Indian) Rupees. Unlike those currencies, Bitcoin is not created by or sponsored by any national government. Typically, a government will establish a central bank that issues money such that the money supply broadly reflects the volume of goods and services created. The purpose of this is to maintain price stability. If we make 2% more things this year, the amount of money should also increase 2% to keep the price of all those things the same. As central banks are either creations of the governments they exist in or least have some relationship with those governments, there is always the risk that a country could enact policies that control of the economy via the money supply to the benefit of some and the detriment of others.

Bitcoin was created algorithmically, such that we know exactly how and when new bitcoins (or fractions thereof) will be created. This algorithm decays over time - while we continue to make new bitcoins over time, we are making fewer bitcoins than we previously did. So the total number of bitcoins in existence is growing - but growing more slowly. The idea was to create a form of money that was stable and not subject to governmental control.

The way Bitcoin is traded allows for trust in any transaction without having to know anything about the party you're trading with. I won't get too deep into the weeds. But in order to question any given transaction in Bitcoin, you necessarily have to question the entirety of every transaction in the system. So either any given transaction is correct or the entire system is wrong. This provides for a high degree of anonymity when doing transactions that you don't wish to be traceable - even if those transactions are, themselves, public knowledge (and they are).
Should I buy some?? - You are basically forex (foreign exchange) trading, except you're trading in a stateless currency instead of that of another country. Do you think the demand for a stateless, anonymous currency is going to grow or shrink? Particularly, do you think it will grow or shrink relative to the rate of growth of the number of bitcoins such that the value of each unit would increase or decrease?

I wouldn't bank my whole retirement on Bitcoin (or any one thing, really). But if you are playing with a small % of your retirement and it is something you can afford to lose, then why not? Every portfolio should have a few % of YOLO in it. Just be aware that it is a roller coaster - often seeing 3-5% swings in 24 hours.

Trading Bitcoin is separate from mining Bitcoin. Mining is the process of solving very complex math problems that are used in the encryption of transactions. The first person who gets the answer to any given problem is awarded a small fraction of a bitcoin. Roughly 18.5 million bitcoins have been mined into existence. The theoretical maximum number of bitcoins that can exist is in the 21 million range. It is expected to take another 20-30 years for that to happen, although with increasing computing power, that may happen sooner.

 

One of my employees farms for bitcoin. He uses solar power to power the PC.

I do not understand 99% of what he said when I asked about this. But he did just buy a Tesla with his $.

 

Market cap is pretty large to have Reddit impact it. Musk managed to move the market, or at least added to the movement.

The energy used to mine is clean energy in a higher percentage than a lot of other endeavors.

People invest in things they don’t understand every day. Such as mutual funds where the majority have only have a general understanding. They shouldn’t do this, but it is what it is.

Fedgov blessed the technology and uses it. Specifically the fed to settle overnight transactions.

You can either invest or speculate. I'd personally start with my two previous paragraphs.

I’ve owned BTC since the 1000’s. I’ve hedged my profit on a federally regulated derivatives exchange. Again, CFTC regulated where counter party risk isn’t some kid in a basement. Another example of fedgov blessing it, or at least accepting it.

BTC is crypto currency. All crypto currency isn’t BTC.

 

If you luck out and find 1.0 bitcoin, that's usually enough for a very nice car, depending on the volatility of the spot market, of course.

 

The REAL money has already been made…..the rest are just speculating.

 

Yes, when you consider that 10 years ago a Bitcoin was valued at less than a US dollar and the still-anonymous developer of Bitcoin is said to have mined over a million of them. The value today is hovering around US $30,000 per bitcoin. Multiply that out! (Hint: Well into the billions US $)

 

So I do trade crypto and I'll share what I know about it as well as give my current opinions on its future. I'll throw out there that I'm not a financial advisor.

1. Crypto currency is a digital asset. It's really not a currency at all but at the same time it's not a security so it is not regulated by the SEC. The fact that it is a digital asset, it is not anything that is physical (no coins or paper notes) that you own which creates the skepticism of why anyone would ever want to own it.
2. There are literally thousands of different crypto currency available (much like stocks). But the one we know best is Bitcoin, which I'll call BTC from it's ticker symbol. BTC was created as a finite currency where there is only 21 million available in the world. The creator "time gated" the availability of BTC by forcing the world to "mine it" using computers so that there wasn't a dump of 21 million BTC into the market in one day which keeps the market value of it within reason. Note that 90% of all 21 million BTC has been mined already currently.
3. What makes BTC attractive as a "store of value" is the fact that it is finite. The crypto community believes that BTC will be the ultimate store of value compared to the USA dollar due to the fact that you cannot create anymore BTC, while the US government keep printing money that perpetually dilutes it value. So if you think about it, if you keep $10k in a bank account, over the next few years, the spending power of that $10K will keep decreasing (this is what inflation is) if you don't invest it in something that increases value.
4. What makes BTC attractive as an investment is that it isn't government backed or government controlled so its price is a true market value. It is worth whatever the people are willing to pay for it. Speculation of its worth in the next 5 years has been pegged at anywhere between $100k to $250k USD a BTC.
5. BTC can be compared to what Gold is today. It is a store of value where both are still being "mined and discovered" in the world today to add supply to keep its value in check. But there will be a day where BTC will hit 21 million and so no more supply. I can't imagine what will happen to its price when that day comes. Honestly, it can go either way but my bet is that it will be up.

 

Since it isn't (currently) treated like a security, there are no restrictions on wash sales. Per my tax attorney, that part of IRS code is somewhat ambiguous. Per my own conversations, this is one thing that could potentially change, and could influence the market.

The above makes holding the asset, as a percentage of a well diversified asset portfolio, dovetail very nicely with equities. Investors / speculators must understand this. If they don't, their financial advisors should. If their financial advisors don't,. well.....

Gensler, for whatever else he is, is friendly to crypto. This isn't a small thing going forward.

I would say, currently at least, it is more like gold then a currency, excepting the fact it can and does pay interest, and at this point an argument can be made it is more a growth investment than a medium of exchange, or a store of value.

In an odd twist, at least for now, it's attraction as a store of value (if that's what it is, or ends up being), is also it's greatest challenge as a currency. By necessity supply would need to increase as the economy grew. There is some debate about this amongst some pretty smart people.

Whatever it is, it's likely in its infancy. At least from a public perception perspective. You can see this right in this thread with references about energy and Reddit. While it is true no serious person buys into anecdotal observations, it is also true public perception and anecdotal observations can drive markets.

Is it forever? That's really two questions in my view. Is crypto or digital currency forever and/or is BTC (specifically) forever? Forever is a long time. Polaroid was a company few though would be obsolete. Things change. New technologies emerge.

 

Also not a financial advisor, but have done a good deal of work with crypto. I concur with most of what has been said above... the only thing I wanted to add for the average retail investor is to consider custody. If you hold Bitcoin (or any other crypto) through an exchange that handles custody for you, you're exposing yourself to the risk of it being stolen or misappropriated (just look at what happened to Quadriga and its clients... I have a direct relative who lost their BTC holdings this way). If you self-custody, it is best to do so through a hard wallet such as Ledger... though you need to become familiar with how that works since even the smallest mistake can expose your holdings to a bad actor. This is a type of risk that doesn't really exist in other asset categories, so it's an important one to be aware of as you can literally be one password away from getting wiped out.

 

I’m not giving any financial advice to anyone.

There are varying opinions on the topic.

I don’t need it in my daily life and have no intention of using it in my daily life. There are fiat currencies that take care of all my needs while using the internet. I don’t see it as a currency. I don’t see as a gold replacement. I think crypto is in its infancy stage and its laying the groundwork for something bigger and better. Do your research and decide if it’s right for you.

 

This is an excellent topic that I have opinions about. I think whether having the exchanges hold it vs personal wallets depends on two things to base your decision on. Check if the exchange is insured for theft and if it is, see for how much per customer? In 2019 Binance got hacked and they said that all their customers who got their crypto stolen will be repaid. But other exchanges and customers of course have not been as lucky as stated above from NFC. And the other item to base this is on is honestly on how organized and careful YOU are. Personal wallets are kept on people's personal computers, mobile phones and USB ledgers. All of which, can either be hacked, lost, or broken. Or, simply put, you might lose or forget your password and then you're SOL. If you google this, you will find many stories of people losing thousands of dollars in crypto because they were careless. The one notorious one is where a guy who had 7500 BTC ($250 million USD) got his PC thrown in the dump and has now dedicated his life to looking for it in the land fill.

 

Give me good old American currency, dollars and dimes.

 

Yeah, custody is a huge consideration. A neighbor's son was a very early Bitcoin miner, when you could still accumulate them with home computers and powerful graphics cards. About seven or so years ago his were valued at over $450,000. Would be millions today. Then they were all stolen when he put them in some "digital wallet" service. Ouch! Dad's a hot shot at Amazon (formerly at Microsoft), so his life isn't ruined, but still....

The whole mining thing makes Bitcoin a unit of energy in a sense. Each one requires more energy to create than the last. That's why Bitcoin mining farms are built in places where electric costs are low, like eastern Washington Public Utility Districts that charge commercial customers wholesale rates for hydropower. It's gotten to the point where some counties have banned new ones because they've become the major power consumers. This is from a Harvard Business Review article in May:

"According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden. "

 

I think it's perfectly fine to invest a couple hundred bucks in some bitcoin as long as you look at it like any other highly speculative investment or Vegas gamble and don't mind if you lose it all. It should by no means be any substantial part of your investment portfolio.

 

https://www.investopedia.com/terms/t/tulipmania.asp