Is it too late to buy Bitcoin?

OOOh, that’s a question. And one I’m asked more and more these days. I always answer it WITH a question (not that if affects my ultimate answer), and always the same one:

“What is it you want to buy it for?”

The answers vary and are sometimes quite vague, because the people who ask this are usually those who are still sitting outside of the cryptocurrency sphere that many of us have now got so used to. They’re basically intrigued, interested and want to get involved in some way. I remember being there myself only a few short years ago and a simple answer would have been great, but the trouble is, I couldn’t find one. There seemed to be as many doomsayers as there were evangelists and none of it made sense. I’m not entirely sure it that’s different today from an outsider’s point of view.

But, if you ask me now, although I’ll qualify it as you see below, the answer is universally “no, it is definitely, definitely not too late.” Some, myself included, may even say you’re a little early to the party. Hell, they’re still setting up the tables and getting the paper plates from the store. You might be surprised by that statement so let me add a few paragraphs to explain the thinking.

If you’re buying purely as an investment, ie you’re not interested in spending it or converting to other currencies, then, in my view, it’s not too late. Bitcoin may be a dinosaur in terms of technology and age (it’s over ten years old already!), but it is also the unwritten ‘reserve currency’ of the crypto world. It’s your ‘go to’ universally accepted and recognized coin that anyone dealing in cryptos is happy to take. As cryptos go, it’s a ‘safe’ bet. This is where it gets interesting though.

Exact figures on how many people use Bitcoin/are aware of Bitcoin/own Bitcoin are hard to come by and estimates vary wildly, but the only area that they agree on completely is that it is a tiny percentage of the global population as of this moment. Today’s price, therefore, is not a reflection of future demand. In theory, any application of the network effect will drive the price proportionately, resulting – on paper anyway – in these very high price predictions you sometimes read about in the press. It’s not an unreasonable assumption actually, especially when you consider that there will never be enough Bitcoin in existence for every person on the planet to have one. There will – categorically – only ever be 21,000,000 in existence, but in reality they’ll be somewhere around 15,000,000 that are actually usable since so many have been lost or locked up over the years. For most of us, we’ll be dealing only in Satoshi (one hundred millionths of a bitcoin represented thus: 0.00000001 BTC). There’s not even enough for every millionaire to have one, they’ll be dealing in Satoshi too. Only the very wealthy or the very early adopters who are still holding will have more than one. Once you apply basic economic theory of supply and demand, the price can only go up.

This assumes, of course, that Bitcoin won’t be surpassed by a younger, better upstart in the meantime, or regulated out of existence – and that is where your risk comes in. My personal view on the former is that the although there will be (and already are) better currencies than Bitcoin, it is far too established to change the base currency easily at this point and Bitcoin will likely co-exist with a couple of other major currencies for different purposes as I wrote about here. On the latter, well, the chances of all countries coming together and agreeing anything at all, let alone cryptocurrency regulation, are so slim it’s negligible. This is a global phenomenon, and you only need one country on the entire planet to agree it’s the future and it’ll never be possible to regulate it out of existence – exchanges will simply move there as we have already seen they are willing to do. It’s arguable whether it would still have the same value of course, but as long as people are willing to buy and sell anything (money, cryptos, drugs, gold, you name it) there will always be a market.

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See that? That’s Subway accepting Bitcoin, that is.

If you’re buying to use it, then of course you’re not too late. In fact, to return to my ‘party’ analogy earlier, you’re not only early, you’re taking the mick by turning up with your sleeping bag a full 24 hours before it’s even started and demanding breakfast in the morning.

You see, actually spending Bitcoin has always been, until recently, quite tricky. I owned some retail stores during this time and used Bitpay which was clunky and slow back then. Some big companies such as Expedia and Steam accepted it, and others, like these examples, have been hot and cold about accepting it, sometimes doing so and sometimes not, usually linked with transaction cost price spikes. Adoption, price volatility and network speed have always been the problem. But like all things in the nascent and uncharted crypto world, these problems are being worked on.

Price volatility is the result of many factors of course, but it is also that the market so small, minuscule in fact, compared to, well, anything else. The whole market capitalization is currently around the quarter of the size of one company – Amazon. This means slight movements can trigger large price changes and it can easily be manipulated by anyone with a few million dollars where no regulation currently exists. My personal view is that as the market grows – which I believe it will – this will become less of an issue, but this is likely to be a long time off. Even regulation, which is managed by country and not globally, can’t provide a universal answer. If price volatility scares you, well, walk away now. It’s not going away any time soon.

The main solution to slow network speed is the Lightning Network, which, without going into technicals, is a way of managing the transactions on the blockchain hugely more efficiently than they are being managed at the moment. In other words, it’ll be a hell of a lot faster than it is now, which is one of Bitcoin’s shortcomings. This is some way off yet, but if it is to achieve any sort of global adoption, this problem does need to be addressed.

The question of adoption is the one that fascinates me the most. Everyday, new retailers come on line, and some bow out (usually temporarily), a bit like an active Twitter account that ebbs and flows with followers depending on your tweets, but overall the trend is very definitely up in terms of places where it is accepted. Interestingly though, actual usage figures have dropped in the same period, almost certainly due to the drop in price resulting in people hoarding and holding out for a better price rather than spending. This is a symptom of what I call ‘fiat thinking’ as we still measure everything on put own currency rather than Satoshi and will do for some time yet. Perhaps we always will.

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Although still a tiny, tiny percentage, more and more establishments now accept Bitcoin. For once, big organisations have no advantage over smaller players. Power to the people!

Recently, however, companies have been attacking the problem from the other angle, making it easier to spend your cryptos from your wallet in the first place. Wirex, who I wrote about here, are a great example of this, and it’s a beautiful, simple system that makes the spending of Bitcoin (and Litecoin and Ripple) as easy as using a contactless Visa card. We haven’t seen the effect of this yet, but I suspect this is exactly the sort of thing that can make a major difference in the pace of adoption. They’re not the only ones of course, similar systems are being developed, trialed and launched all the time, the momentum is building and it is – surely – a matter of time.

You’ll notice I haven’t, directly anyway, mentioned institutional investment. It’ll come, I’m certain of that because if there’s one thing you can trust these guys to do it’s to sniff out new opportunities and get the returns as soon as is possible. However, my view is that we, the people, have just as much impact on the future price and adoption of Bitcoin as the big institutions do, perhaps more so. This is an astonishing statement and almost certainly the first time this has happened in history. That’s quite a paradigm shift that will take quite some time for most people to get their heads round.

So, is it too late to buy Bitcoin? In my opinion, no. It’s as simple as that and I’m still stockpiling both Bitcoin (well, I’m spending a little because I find it enormously satisfying to buy a round at the pub with it) and certain other cryptos on a daily basis, even now. I understand of course this is not without risk given the unknown unknowns that lie ahead, but this is an incredibly exciting time and, for me, I want to be part of it in the same way I wanted to be part of the internet growth in the 1990’s.

And we all know how that turned out, right?

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