The up’s and down’s of Bitcoin

On November 20, I bought my first cryptocurrency. It was $25 of Ethereum. Within days it jumped to $30, an astounding 20% jump. It took the S&P 500 all of 2017 to go up 20%. Over the coming weeks, I gradually purchased more and more cryptocurrency. Since Coinbase offered Bitcoin, Ethereum and Litecoin, I figured I should diversify and spread my odds across all three.

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Here is a simple Excel chart of the unrealized gains of my cryptocurrency since I started. (I use Cointracking.info to track my coins, but that’s the topic of another post). By Dec 18, I had bought $1200 of cryptocurrencies and was up $985, representing an insane 82% increase. That was the day bitcoin hit $20,000. I knew I was going to be a millionaire in a matter of months. I felt like a genius, and my only regret was that I didn’t put my entire life savings into bitcoin. Of course, I had to stick to my genius strategy of just putting more money into bitcoin and watching it explode. As you can see from the chart, in less than a week, my profit would drop to almost $400, still a respectable 25% profit based on the ~$2000 I had deposited.

However, because this chart only plots the daily profit, it doesn’t show the hour by hour and minute by minute volatility of each day. On Dec 24, my crypto-profit had all but disappeared and I was looking at a $100 loss and expecting my $2000 investment to go to zero within a few hours. Going from being in the black 82% to being in the red in less than a week was shocking. I was this close to getting out of the cryptomarkets altogether. I stuck it out because of my stubbornness long-term hold strategy. Fortunately, it has bounced back and has stabilized to a still awesome-but-not-amazing-as-82-percent 25% gain. I’m going to hold off putting too much more $$ into bitcoin until I can figure out a good crypto investment strategy and gain a better sense of the market cycles. But I’m glad that I was able to experience a crypto-market correction and still be invested. That’s not to say I won’t pull all my money out if/when it crashes again though!

How did you handle the recent market correction?

 

 

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3 reasons why I took the plunge into Bitcoin

The topic of bitcoin has come up all over the place. From family, friends, random acquaintances, co-workers. There’s that famous story about how in 1929 Joe Kennedy, the father of JFK, knew that the market would crash when he was getting stock tips from the shoe shine boy. The story goes on to say how Joe Kennedy sold his stock portfolio and avoided the stock market crash leading to the Great Depression. Well, that’s kind of how it feels now with Bitcoin being the talk of the town.

On the other hand, pundits have been predicting a stock market crash over and over again over the past decade.

2016 – “Countdown to the stock market crash of 2016!” (11.96% S&P return in 2016)

2014 – “98% chance of stock market crash in 2014!” (13.69% S&P return in 2014)

2012 – “Get ready for a stock market collapse!” – (16.00% S&P return in 2012)

Trump win – “Trump win will lead to market crash!” (20+% S&P return so far in 2017)

And this guy wrote a book about huge returns for 2008! Check out the reviews. They’re pretty funny.

So in other words, nobody knows anything about the future, much less when/if Bitcoin will crash.

By now, almost everyone has at least heard of bitcoin. But what compelled me to finally get involved, even with all the skepticism out there?

  1. FOMO. Fear of missing out. Worst case scenario, I lose my investment (which at this point is a couple thousand dollars). Best case scenario, my investment rises 2,000%+ in 2018. And entirely possible, it goes up a few percent and matches the stock market. I see bitcoin as just a small percentage of my entire investment portfolio. Most of my money is in stable, boring index funds. So I can afford to put a small portion in a wildly, high-risk, speculative investment.
  2. The technology is fascinating. This is actually what really sucked me in. The idea of a decentralized, pseudo-anonymous currency, immune from the influence of governments and institutions makes a lot of sense. It used to be that only drug lords and criminals would care about anonymity, but in these days of Equifax leaks, everyone should care about protecting their private data. I’m not going to pretend I know everything (or even 5%) about how blockchain works, but there is huge potential, basically anything that involves transmitting, securing and verifying data. (Is there any company that doesn’t need that?). There are a ton of Youtube videos explaining the technology. A lot of them don’t get into the nitty gritty that my brain needs. This one was the best one. Whatever happens to bitcoin, blockchain, the technology behind bitcoin, is here to stay.
  3. Low barrier to entry. If investing in bitcoin involved starting a company or finding a venture capital firm, or even installing and running a coin mining program on my computer, then I’d still be on the sidelines. It cost me a few dollars in fees and about 10 minutes to get started at Coinbase.

So there you have it. Come take the plunge!

Moving cashing in and out of Bitcoin using Coinbase

Coinbase is one of the most popular cryptocurrency exchanges. It’s known for being simple and user-friendly. It started in 2012 and according to CNBC, it has over 13 million accounts. I have been using Coinbase to move money from my bank into bitcoin and my experience has been relatively smooth.

Is it easy to use? This is where Coinbase excels. It’s clearly made for average joe trader. To create an account, I only needed my name, email address and bank info. You can also buy with credit card, but there are additional fees. It currently only has 4 currencies and there is a simple dashboard showing the price movements of each.

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Darn! Should’ve bought more Litecoin when it was at $191

The dashboard also displays your balance:

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Need more Litecoin…

You can also transfer your coin to other exchanges. You just enter the address of your destination wallet and off your coin goes (minus the obligatory transaction fee)

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I did not find a lot of documentation on the website itself, but there are plenty of other guides that people have made, so just ask Google or Siri.

How safe is Coinbase? Because of the anonymity and speed of transactions, cryptocurrency is a huge target for hackers. Earlier this year, a bitcoin exchange, Youbit based out of South Korea, got hacked for $35 million worth of coin. Youbit has since shut down due to the hack. NiceHash, based in Slovenia, was hacked for $60 million.  So far Coinbase has not been hacked. This is not to say that a hacker couldn’t steal your password. For this reason, I would highly recommend enabling 2-factor authentication. You download Google Authenticator on to your smartphone. Whenever you are trading your coins, Coinbase will ask you for a 6 digit code which will appear in your Google Authenticator app.

How reliable is Coinbase? This is where I think Coinbase struggles. When bitcoin prices are especially volatile, Coinbase cannot handle the volume of transactions and becomes unavailable. If you’re looking to cash out or cash in during these peak moments, you may be out of luck with Coinbase. When Coinbase added a new currency, Bitcoin Cash, earlier this month, not only was buying shut down, but there was some alleged insider trading going on in Coinbase which made the price even more volatile. Customer service is supposedly iffy at Coinbase. I haven’t had to contact customer service yet, but from looking at the lack of documentation and user guides on the site, I’m not surprised.

Overall, I think Coinbase is a convenient place to cash in and cash out of cryptocoins, I would recommend moving your coin to another exchange after you buy. It is pretty bare-bones with makes it easy to use but possibly too bare bones if you want to explore other currencies.

 

How to read Bittrex order history

There isn’t much of a user guide for Bittrex. It’s clearly designed for the more than casual cryptocurrency investor. One part that confused me initilly was the order history. Bittrex keeps a log of your order history, like this:

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The first several columns are self-explanatory.

Bid/Ask – This is the price that you listed to buy or sell.

Units Filled – This is the amount of currency that was bought or sold.

Units Total – I think this is the same as Units Filled. I’m not sure if it’s possible to only have partial orders filled.

Actual Rate – This is the rate at which the trade actually went through.

Cost/Proceeds – If this is a negative amount, then this is how much you paid for buying currency. If this is a positive amount, then this is how much much you earned for selling currency. Remember, in Bittrex you can only buy using cryptocurrency, specifically Bitcoin, Ethereum or Tether. So if you are buying crypto currency, then the amount will either be an amount of Bitcoin, Ethereum or Tether. If you are selling, then the amount will be the amount of whatever currency you are selling. The Cost/Proceeds automatically deducts the 0.25% fee that Bittrex charges. I wish this was listed in a separate column, but it can be easily calculated.

In my above situation, I bought Dash using Ethereum. I bought 0.04 units of Dash at a rate of 1.725235 ETH per Dash. This results in -0.0690094 Ethereum being deducted from my Ethereum wallet. Now I subtract out the 0.25% fee and I’m left with -0.06918192 Ethereum as my Cost.

The tricky thing is just keeping in mind what the currency is for the Cost/Proceed column.

Hope that is helpful!

 

Getting started with Coinbase

Like many others, my first bitcoin purchase came through Coinbase. It has an easy to use interface. It charges 1.5% fee if you use a bank account to purchase bitcoin. If you use credit card, the fee goes up to 4%, so don’t do that. If the only way you can fund your Coinbase account is via credit card, then you probably shouldn’t be buying bitcoin.

Once you purchase your bitcoin, it takes 7 days for the coin to actually show up in your Coinbase account. The website says 3-5 business days (which equals 7-10 calendar days), but it’s been 7 days for all my purchases. However, the price at which you bought the coin is locked in. So if Bitcoin is worth $15,000 when you buy some and the prices drops to $14,000, your purchase price will still be $15,000 when it shows up in your Coinbase account.

You are not able to sell or transfer your coin until it shows up in your Coinbase account. I have found this delay to be both annoying and helpful. Annoying, because I often have the urge to buy some other cryptocurrency right away because of some breaking news. However, the delay is helpful because it reminds me to hold back on day trading habits. As a stock investor, I am buy and hold and shun day trading. I want to enact the same discipline in my bitcoin investing.

Currently, through Coinbase you can only purchase Bitcoin, Bitcoin Cash, Ethereum and Litecoin. If you want to trade other cryptocurrencies, you have to transfer your coins to another exchange. I use Bittrex. Also, Coinbase does not allow you to transfer between its coins. So if you have Bitcoin, but want to exchange it for Ethereum, there is no way to do that within Coinbase. You would have to transfer your Bitcoin to another exchange (like Bittrex), transfer your Bitcoin to Ethereum, then transfer your Ethereum back to Bitcoin.

Bittrex has hundreds of crypto currencies available to purchase. However, Bittrex does not have function for USD deposits. You have to use Bitcoin or Ethereum to purchase crypto currencies. This makes it confusing to track your cost basis. So if I use 0.05 Bitcoin to buy 1 Ethereum, I need to record the USD of that 0.05 Bitcoin at the time of exchange if I want to know my cost basis. Bittrex will only record the fact that I used 0.05 Bitcoin for the purchase.

That’s the general process. I’m still figuring out the intricacies of Coinbase and Bittrex and will post more as I tinker more.

3 common reactions to Bitcoin

When I tell people that I bought some bitcoin, I’ve gotten a number of reactions

1. “You could lose it all.”

This is true. And I don’t recommend investing anything into bitcoin that you wouldn’t be ok with losing. But this is really true for all types of investment. The higher the potential reward, the higher the risk. I actually already had some funds, ~$2,000, which I use for more riskier stock investments. These are stocks that I check once a year and try to pick something that’s trending up and ride the wave to profits. More often than not I actually lose money on these stocks. But I bought Facebook stock last year and it ‘s been doing well this year. So I just took that money and moved some of it into Bitcoin.

2. “Bitcoin isn’t backed by anything.”

This is true too. I agree that investing in bitcoin is more speculation than investing. And Bitcoin is not backed by any company or government. This leads people to believe that there is no intrinsic value in Bitcoin. But the value in Bitcoin is based on the fact that other people want it. This is similar to baseball cards or pieces of art. The cardboard and ink that make up the Honus Wagner worth certainly are not worth the $2M price tag that it fetches. But the fact that people appreciate and want it, make it a valuable item.

Furthermore, there are plenty of investments which aren’t backed by anything more than speculation. Snapchat lost half a billion dollars in 2016 and yet the company is worth $34 billion dollars. That 34 billion dollars was in some ways created out of thin air.

3. “It’s just a bubble.”

Possibly. But it’s been bubbling for five years now and in 2017 it’s been absolutely on fire. People are also saying the same thing about the current bull stock market. Yet people continue to bet their retirement funds on it. The important thing is to approach bitcoin investing like any investment. Understand the risk of loss and protect yourself by diversifying all your investments and your investment in cryptocoins. I have only a small percentage of my net worth in crypto currency (way less than 1%) and I am trying to diversify my crypto holdings beyond just Bitcoin to other altcoins. I’ll post up my crypto portfolio in a later post.

 

Crypto blog

This is a place where I can blog and record my personal journey through cryptocurrency. I’m a newbie myself, but the path of a thousand miles begins with one step. Like most people I had heard of bitcoin off and on over the past 5 years. And like most people, my main regret is not buying into bitcoin in the early days. I made my first foray into cryptocurrency through purchasing $25 of Ethereum on Coinbase in November 2017. It was an easy process to enter my bank info. Within days my $25 became $30. Since then I’ve bought some more coin and started to dabble into other currencies and reading up on crypto currency as much as possible. I’m starting this blog to record what I learn and perhaps help someone else who jumps into crypto currency somewhere down the line.