So, you’ve only just learned about bitcoin, you’ve seen that people have become millionaires through investing in it. Your question is: “Can I still do the same, or has the bitcoin boat sailed?”
Unfortunately there’s no simple answer to this. Can you still make millions from bitcoin? Possibly. Has the bitcoin boat sailed? Certainly not.
Bitcoin, and digital currency as a concept, is still very young. Created just five years ago, it’s still trying to find its feet and its price is suffering rather wild volatility. On top of this, recent company failures have left a lot of bitcoiners out of pocket.
That said, there are plenty of people who have made a lot of money from bitcoin, having invested in the early days and watched the price rocket since then.
Those who invested two years ago, when the price was $5 a pop, have seen their investment increase a sickening 9,560% to $483 per bitcoin (at the time of writing). In order to enjoy the same percentage return over the next two years, the price of bitcoin would have to increase from $483 to around $46,500.
Sounds ridiculous, right? Actually, some people don’t think it’s that far fetched at all.
A number of extremely bullish bitcoin price predictions have been voiced over the past year by some pretty notable commentators.
Ex-Facebook executive Chamath Palihapitiya kicked things off in May last year, writing in a piece for Bloomberg stating that each bitcoin could go on to be worth more than $400,000, provided it establishes itself as a “useful reserve currency”.
The Winklevoss twins (of the Facebook lawsuit fame) said in November that they believe the price could go on to increase 100-fold, with the market cap reaching $400bn (the market cap is currently $5.8bn).
A few weeks later, a report from Wall Street analysts Gil Luria and Aaron Turner predicted that the price of one bitcoin could increase to almost $100,000.
Titled ‘Bitcoin: Intrinsic Value as Conduit for Disruptive Payment Network Technology’, the report predicted the price of bitcoin could increase to 10-100 times its value at the time, which was around $1,000.
Political and financial pundit Max Keiser has been championing bitcoin for years, but in December he suggested it wouldn’t be long before the price hit $5,000.
As predicted, 2014 will see hedge funds and PE funds (like Fortress) enter BTC space. Hello $5,000!
— Max Keiser (@maxkeiser) December 31, 2013
CoinDesk polled its readers in January and found 56% of the respondents believed the price of bitcoin will reach a whopping $10,000 this year. Of the ‘young people’ quizzed for a separate survey by Wired, 42% said they believe bitcoin is a lasting currency and 30% consider investing in or mining bitcoins as safer than the more traditional stock market.
While it seems there are plenty of people flying the flag for bitcoin, it’s worth noting there is an endless supply of pessimists who think digital currency will crash and burn in the not-so-distant future.
“Stay away from it. It’s a mirage, basically,” the billionaire investor said, adding that “the idea that it has some huge intrinsic value is just a joke”.
American economist Paul Krugman voiced similar views in an opinion piece he wrote for the New York Times back in December called ‘Bitcoin is Evil’. He said he was “deeply unconvinced” that bitcoin could actually work as a form of currency and he doesn’t think it works as a “store of value”.
Sir Bob Geldof followed suit shortly after, damning bitcoin by saying digital currency “simply won’t work”. However, Max Keiser told the world not to pay any attention to the singer’s protestations, claiming that asking his opinion on bitcoin is a “worthless exercise”, akin to “asking a blind man his opinion on a Turner”.
American economist Nouriel Roubini, who anticipated the collapse of the US housing market and the worldwide recession that started in 2008, is also not bitcoin believer.
He has taken to his Twitter feed to label it an “irrational useless bubble fad”, a “Ponzi game” and a “lousy store of value”.
So Bitcoin isn’t a currency. It is btw a Ponzi game and a conduit for criminal/illegal activities. And it isn’t safe given hacking of it.
— Nouriel Roubini (@Nouriel) March 9, 2014
How to get involved
If the above ranting hasn’t put you off getting involved in bitcoin, it’s likely you’re now wondering how best to start.
You’ve probably heard that bitcoins are generated through a process called mining, which involves the use of computer hardware to solve complicated mathematical equations. In the past, people could use their own PCs to mine bitcoins, but things have now evolved so that to make any significant return, you have to first invest in application-specific hardware that can cost thousands of dollars.
Most people are choosing, instead, to get involved in bitcoin simply by buying some of the digital currency via online exchanges, such as Bitstamp, BTC-e and BTC China, or marketplaces such as LocalBitcoins.com.
Once you’re in possession of some bitcoins, you then have to make a decision about what to do with them – do you stash them away and hope for the best, do you spend them or do you do a bit of both?
That’s completely up to you, but bitcoin’s value will only increase if its popularity increases, and for this to happen people need to use it, to spend it and to take advantage of the benefits it provides.
By all means, store some in a bitcoin wallet, but don’t just leave all of them in there, gathering virtual dust. Create another wallet that you use for spending. Make some purchases, test it out, explore how easy it is. Tell your friends about it and give your investment the best possible chance of blossoming into the millions you’re praying for.
It’s important that you treat bitcoin like you would any high-risk investment – there’s a chance you could end up making a lot of money, but there’s also the chance you could lose everything. So, just be sensible and don’t invest more than you can afford to lose.
For now, the bottom line is that digital currency isn’t going to go away any time soon. So, when are you going to take the plunge?