Getting Started with Cryptocurrencies – Common Questions

skeptic

You have just heard about Bitcoin (BTC) and how if you have held $100 worth of BTC in 2011, you would have > $70 million now. You may be thinking of a few things:

  • If only I bought that $100 worth of Bitcoins, I would be lying on the beach of Maldives, sipping on my glass of martini.
  • Now the price is so high, it’s probably the worst time to buy any.
  • Also, my friends were telling me it’s a passing fad and the bubble may burst anytime.
  • By then, I’ll probably be lying under the bridge, drinking rainwater collected in my inverted umbrella.

Let me ease you into getting your hands wet and join the crowd by sharing my two cents on the above points.

Face it, 2013 is not coming around

We will never get another day where a pizza cost 10,000 BTC. If that day were to come, you have greater things to worry about. As the Chinese proverb says…

The best time to plant a tree was 20 years ago. The second best time is now.

If you are like me and didn’t manage to snag up some cheap coins years ago, it’s not too late to consider if it is worthwhile to hop onto the bandwagon now. The last thing you want to do at 2050 is to say “If only…”.

The price was high when it was $100 USD

The price was high when it was $100 USD. But the price kept rising.

The price was high when it was $1000 USD. But the price kept rising.

Many people hesitated when they see the ‘high’ price when they are thinking of buying. Some people tried waiting for a ‘dip’ in the price, but the day never came. What many people fail to notice is that price is what you pay, and value is what you get. Of course, the ‘value’ of one Bitcoin is almost completely arbitrary, decided only by demand and supply. So let’s try a different approach to this…

We know the supply is going to be constant, there are only that much bitcoins on the market and the rate that new bitcoins are going to be created. Considering that no one single person may manipulate the entire circulation of bitcoins, we can say that supply is unlikely to change much. So the price of bitcoins is almost dependent only on demand.

Adoption-Curve

This is the technology adoption curve. It’s a great model to explain how different products are being adopted by the market. In this case, we have the inventor of bitcoin and the developer community forming the ‘Innovators’ group. We also have more developer and people who believed in the technology or the value of the bitcoin forming the ‘Early Adopters’. Now, we are in the ‘Early Majority’ phase where people like you and me start to get their hands wet at it.

Once we overcome the scepticism of cryptocurrencies and have the government set up a legal framework to regulate this new currency, we are likely to see mass adoption of blockchain technology. In fact, our Singapore government is running tests on tokenising our currency!

Till then, we are probably going to see more demand for cryptocurrencies and greater market capital of all the cryptocurrencies. Is the price more likely to increase? You decide.

No one told you to invest in Bitcoins!

Bitcoin could be a bubble, albeit unlikely. If you are treating Bitcoins as an investment vehicle, do what you would do to protect yourself from different forms of risk!

When we talk about cryptocurrencies, we are talking about more than Bitcoin.

Look at this table. Bitcoin just happens to be the market leader with first mover advantage and awesome security. There are other coins out there that has very different value proposition compared to Bitcoins.

For instance, we have Ripple (XRP) for the financial market, Ethereum (ETH) for the creation of decentralised applications, Dash (DASH) and Zcash (ZEC) for more anonymity.

Instead of investing in just Bitcoins, you invest in some other coins which you believe in what they do. Diversify your investment!

Finally, don’t sell your house for Bitcoins

No one does it for stocks or forex. It was never a good idea.

Getting your feet wet is a great idea. Jumping into the deep sea without any idea of what you are getting into is not.

Know your financial status and find out how much are you willing to lose. A knowledge of the risk-return ratio for your investment portfolio is a great start.

Summary

In summary:

  • If not now, when? We are not going back to 2013.
  • The cryptocurrencies are still in their infancy stage. You can still get in ‘early’.
  • There are more cryptocurrencies than just Bitcoin. Choose wisely and diversify.
  • Start small.

In my next post, I will touch on how you may diversify your portfolio.

ps. If you are looking at getting your feet wet and would like to purchase bitcoins, do drop me a message (=

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