Investing & Money
piece written on the 5th March 2017 by  

I’m not sure how many of my readers are following Bitcoin, but it’s a hot topic at the moment. I’ve blogged about it before and I’ve blogged about investing a number of times so I’m going to assume (and hope) that this post will be well received.

Bitcoin Chess

A few years ago I published a post about Bitcoin. In this post, I talked about what the various terms related to Bitcoin meant, I provided some guidance as to which websites are worth following and explained how you could go about buying Bitcoin as a South African. At the time of publishing the blog post, Bitcoin was trading at $212 roughly. Now, Bitcoin is trading at $1250 roughly – That’s an enormous increase in just a few years, but it wasn’t smooth sailing after my blog post. The price flew up to R11,200 a coin but then dropped steadily to R3,000 a coin by the end of the first quarter in 2015. If you bought when I wrote the blog post and had the courage to stick things out, you’ll be incredibly happy:

Bitcoin Price Over Time

Yes, that’s a 2,809% increase!

Swings (big up or down movements), when you’re trading, are a way to make a great deal of money quickly, but they’re also a way to lose a great deal of money quickly. Any astute investor¬†will know that what we really want is a steady increase in a share price, or in this case the Bitcoin price. Too much volatility isn’t a good investment due to the risk¬†and uncertainty. One of the problems with huge upward swings are that they often result in a bubble, and we all know how quickly bubbles burst – just think about the .com bubble, real estate bubbles and so forth. With Bitcoin, I’m not going to go into detail on this topic because Vinny Lingham has covered it wonderfully on Medium.

So, steady growth is definitely what we want and it’s encouraging to see that there is good potential for this. One thing that I’ve tried to keep my eye on is the number of Bitcoin ATM’s around the world – The adoption of ATMs shows real-life buy-in of Bitcoin, and a steady increase in ATMs shows us good adoption. Here’s a graph I came across showing the (steady) increase in Bitcoin ATMs:

Bitcoin ATM Growth

The ATMs are situated in the United States and Canada mostly, however, I believe that 24% of the Bitcoin ATMs were situated in Europe in 2016 – This shows good strength in areas outside of the West, which shows wider adoption, which is again what we want to see.

With all that being said, volatility is going to hit us shortly. Three Bitcoin ETFs are undergoing review by the SEC, the first being an ETF run by the Winklevoss Twins. The results are set to be announced on March 11, 2017 – However, Cornell University Law School shows the following, “Dates certain will be computed by counting the day after the publication day as one, and by counting each succeeding day, including Saturdays, Sundays, and holidays. However, where the final count would fall on a Saturday, Sunday, or holiday, the date certain will be the next succeeding Federal business day.” – The 11th is a Saturday, therefore the announcement should take place on the 13th of March, 2017 if I’m not mistaken (NB: read this). This announcement is going to be incredibly interesting, an approval may easily result in hundreds of millions of dollars flowing into the exchange which in turn could boost the Bitcoin price all the way up to $3,000/coin! The opposite may apply too, and therefore like I said earlier, swings are dangerous and are not want we ultimately want. The other two Bitcoin ETFs are also set for results shortly afterwards so I think we’re going to see major movements in the price over this period.

If you’re a trader (rather than an investor), then you might be looking forward to this period where volatility could make you a great deal of money. You may be buying on approval or buying low on disapproval. If you’re interested in the ETFs and want to get a better understanding of what to potentially expect, this article on EFT.com is very useful. What I can say, though, is that in the beginning there was a favouring towards a disapproval, but over the months it has become somewhat of a 50/50 chance that the ETF will be approved and this leaves predictions in the air and caution incredibly important.

I’ll end off by saying that all the reading I’ve done leads me to this conclusion:

If the fund is approved, we’ll see a massive spike in the price. If the fund is dissapproved we’ll see a drop, but the long term outlook is that Bitcoin’s price will rise again. So, like any trading, human psychology normally has people selling near the lowest point, so if it’s disapproved, it might be a good idea to hold on for the long term rather than trying to sell and save a buck.

In the meantime, this will be burned into my eyeballs:

Screen Shot 2017-03-05 at 8.31.50 PM

This article consists of my thoughts, I’m not a financial advisor nor a professional trader/investor. Do not act on what I say, draw your own conclusions and act upon them carefully.

PS. Some people buy big:

Screen Shot 2017-03-05 at 8.57.42 PM