Every quarter we get together with three other families for a dinner party. While all professionals no one is in the finance space except for me. But at our last gathering this past Sunday night the conversation turned to bitcoin. In the last month or two bitcoin has made the jump from esoteric financial instrument into a dinner party discussion subject.
We first covered bitcoin in a two part series on marketplace lending with bitcoin three years ago. It provides a good primer to what bitcoin is, the definition of a blockchain and how it works for lending.
Back in late 2014 bitcoin was nothing more than a curiousity – you could barely even call it part of finance – it was a strange hobby that a few tech people were engaged in. Today, bitcoin is making an appearance regularly on the front page of the Wall Street Journal as its meteoric rise has captured the imagination of the general public.
Depending on the day (or the hour) bitcoin has a market cap of around $300 billion which is close to the value of Bank of America, one of the top 10 largest companies in the United States. According to Coinbase, the largest bitcoin exchange in the world, the price of bitcoin is up over 2,000% in the last 12 months and that is why everybody is talking about.
We have read articles about someone buying two pizzas for 10,000 bitcoins back in 2010 (around $170 million in today’s value) or another person throwing away 7,500 bitcoins. There are now bitcoin billionaires and many other stories of people who have become insanely rich because they got into bitcoin early. This is what captures the imagination of the public. If only we had invested just a few hundred dollars back in 2011 or 2012.
The Rise of Cryptocurrencies
Bitcoin is not alone. While it was the first to launch back in 2009 it is part of a growing group of cryptocurrencies that have been created in the past few years. According to Coinmarketcap the top five most valuable cryptocurrencies in the world are (in order): bitcoin, Ethereum, Bitcoin Cash, Ripple and Litecoin.
Bitcoin is by far the largest of these currencies with a market cap far exceeding the total of the next four. But this has been such a volatile space this could change very quickly. For example, Ripple has rocketed past Litecoin this past week as it has risen from $0.22 a week ago to over $0.80 today. That is quite the move even in the highly volatile crypto space.
Sharing My Cryptocurrency Portfolio
My entry into the cryptocurrency space began back in early 2015. We had just published the two-part series on bitcoin marketplace lending on Lend Academy and I was discussing bitcoin with the founders of NSR Invest. Michael Phillips introduced me to Coinbase as an easy way to buy and hold bitcoin. So, I deposited around $2,000 and bought 10 bitcoin. Then I promptly forgot about it.
I started paying attention in late 2016 when I could see the price going up substantially from the $199 I paid for it to over $750. Then 2017 happened. I still cannot believe the rise we have seen this year. I have sold around 4 bitcoin for a total realized gain of less than $10,000 but the value of the remaining bitcoin I hold is now over $100,000 depending on the day.
Here is a screenshot of my Coinbase portfolio today. You can see that I also hold Ethereum and Litecoin.
Three months ago I transferred in another $10,000 into Coinbase with the express purpose of buying other cryptocurrencies. Since then I have bought some Ethereum (at $258) and some Litecoin (at $55).
Not included in the Coinbase graphic is Ripple. Ripple was actually started by the former CEO and co-founder of Prosper, Chris Larsen. I got to know Chris while he was at Prosper so I have been following his journey at Ripple since he started back in 2012. I own around 10,000 Ripple that I bought at $0.20 each earlier this year but since Coinbase doesn’t support Ripple I had to use another exchange to buy it. I actually have what is called a private Ripple wallet and I sent bitcoin from Coinbase through Changelly to this private wallet. It was a little complicated but I wanted to own Ripple and this was the easiest way I could find.
I also hold some Bitcoin Cash courtesy of a hard fork earlier this year. This is supposed to show up in my Coinbase account in January.
I am looking to continue to expand my cryptocurrency portfolio to a couple more currencies. I am going to exchange some bitcoin for a small amount of money in even more speculative cryptocurrencies.
Buy, Sell or Hold?
Anyone who thinks they know what the future holds for bitcoin or other cryptocurrencies is fooling themselves. Bitcoin is now officially the biggest bubble in history, eclipsing the tulip mania of the 17th century. I have seen predictions of bitcoins future value ranging from zero to $1 million in the coming years. And nobody knows for sure which end of the spectrum bitcoin will move towards.
Here is what I think. Bitcoin is a store of value like gold but in digital form. I am not sure if it has much utility beyond that, I don’t believe it is going to be a payments mechanism. As a digital store of value, though, it is too volatile to attract serious long term investors right now. The fantastic run up we have seen this year is being fueled primarily by speculative individuals.
If you got lucky, as I did, and bought some bitcoin early you would be foolish to think the party is going to keep going on forever. If bitcoin ever hits $100,000 that would imply a market cap of around $1.7 trillion and at $1 million the market cap is $17 trillion. That is a significant percentage of world GDP and I think it would make governments very nervous. They would want to regulate it before it gets anywhere near the $1 million mark. They simply could not afford to have an unregulated currency pose a systemic risk to the economy. If you want to learn what governments around the world think you should read this post from Chris Skinner.
Now, I don’t think bitcoin is going to zero either. Even if governments do try to regulate it, unless most of the world’s governments completely outlaw bitcoin, it is so widely held today that I think it will have value for a long time to come. In the long run governments will probably try to issue their own digital currency that will compete with the likes of bitcoin.
Having said all that, as I discussed earlier it is all guesswork as to the future of bitcoin. Which brings me to what I am doing with my holdings. I don’t intend to move any more fiat money into cryptocurrency but I will likely move some money out of bitcoin into other currencies as time goes on. And I will also continue to withdraw small amounts if the price of bitcoin continues to go up.
Everyone says by the time your taxi driver or dinner party guest starts talking about an investment it is time to get out. I will not be getting out but my eyes are wide open knowing that these investments could all be worth a fraction of their value by this time next year. Or they could double. And that is the fun of cryptocurrencies today.
One last thing. If you are interested in learning more about bitcoin, cryptocurrencies and blockchain technology you should come to the BlockFin Summit that will be part of LendIt USA 2018.
Once again, good sir, you have proven your lack of under the standing but dont NOT worry, I will help you to get the premise of Bitcoin, this GOD of yourse.
You see, Bitcoin is already bening used for multiple uses. Just jesterday I went to a coffee shop and my self a cool little lattë on Ice. Now, you seem to be of the narrow-minded soon-to-be-poor ALT Coin growd. Now, if you think that you’re so smart. Would you riddle me this? “Why do you think Bitcoin deserves hate more than ANY other currency pair?” Well. Go ahead. Since you know it all Mr. Know-it-all.
Ha, you’re foolish remarks truly never stop amazing me, dear sir. I would explain you why you’re so wrong on multitude of levels but, á lás, that would be like explaining time travel and multi-dimensional quarks-bosom particle dynamics to a mere goldfish.
Wow George, That is quite a strong reaction and I don’t understand exactly what point you are trying to make. I never pretend to know the answers, I am merely putting forward my opinion.
Peter, don’t worry about this guy. He can’t even construct a sentence and is trying to criticize. When someone is playing at intelligence, it is always easily spotted. Thanks for the article.
Thanks Steve but comments like that don’t bother me.
Hey George, when you used to buy coffees in the stone age days, did you throw whatever was in your wallet over the counter and both you and the barista took a chance whether it was worth 50 bucks or a nickel?
The amazing rise of BTC has surely disqualified it as a payment method for the foreseeable future, for anyone trying to run a business that isn’t directly centred on BTC.
One thing I would like to know is the market depth underpinning recent valuations. Like, how long would it take that pizza guy to turn his 10kBTC into 170m$?
Also, the recent volatility must make for some interesting conundrums on bitcoin lending platforms – whether you fixed USD/BTC or not, one side is in trouble…
Good question on market depth. While 10,000 bitcoin is a lot you should be able offload it quickly. The 24-hour transaction volume across all exchanges is close to one million BTC these days although the quickest way to divest BTC would be to take USD as well as other cryptocurrencies. You can follow along here:
https://coinmarketcap.com/currencies/bitcoin/#markets
Good article though I think listing the amount of your holdings is a little bit distasteful. Also, I lose interest immediately in any article that makes the Bitcoin-Tulipmania comparison. I think it shows a lack of understanding as the two events have almost nothing in common.
I think people trying to make some quick money is great and taking profits on a spectacular bitcoin rise is good, but I believe the smartest people have started to denominate their crypto-holdings in BTC and trying to accumulate more. These people realize the paradigm shift that’s going on.
I would love to read about the lending community within the Bitcoin space. I used to lend out my Bitcoin on a site called BTCJam. It was a great site though stopped operating in the US about two years ago. Since then there are other companies that have come up. SALT Lending is one, not too familiar with, and there are several other ICOs exploring credit and lending.
Hi John,
I shared my holdings because I believe in transparency when talking about investments, it is what I do with my marketplace lending holdings.
We will be covering more on the bitcoin lending space in the new year. There have been a few new companies emerge that are interesting.
never stop being transparent, that’s why I respect you and your site and have been reading for last couple of years. do you think ICOs are the new way to fundraise and will eventually tokenize the world and replace equities?
Thanks Sage, appreciate your comment. I think ICOs are a game changer in many ways, I think it will have a profound impact on angel and VC investing in the near term. In the long term who knows? For ICOs to replace public equities is certainly possible but we are talking in the long term here – the public markets are firmly established today. It is going to be fascinating to see this play out.
The two things are exactly identical.
Bravo Peter for always being transparent, and giving your honest opinions, and putting your money where your mouth is:)
As a long time, and an ardent supporter of yours, I, along with many, always look forward to your quarterly reports and simplicity in explainig your thoughts, and viewpoints.
Quite refreshing to have access to reporting like yours, unlike others who only do a lot of talking, selling, without any proof, nor following of what they say.
Would love it if others would be as transparent and show their holdings, and narrarate once a quarter as you do, to make everyone benefit from one another’s expertise and movements.
Perhaps a quarterly column in your newsletter on others’ experiences in the investment world?
As always, keep up the great work!
Thanks Hrant, always good to hear your thoughts. I appreciate the kind words. That is a good idea to hear from other investors. I do it occasionally on the podcast but hearing from others on a regular basis would be interesting. Will put it on my list for 2018.
Congrats on making about $27,000 on Ripple in 3 weeks
Thanks Sean. Ripple has been on an amazing run in the last few weeks. If it keeps defying gravity like this way I will be taking some off the table.
Peter,
Great job getting into Ripple when you did. I’ve been dabbling in the Cryptosphere since 2012 – 2013. Probably the biggest thing I have learned is don’t store you currencies on an exchange like coinbase. Simply use them when you want to convert to fiat or another cryptocurrency. I would suggest you pull them off into a wallet. A hardware wallet like trezor or ledger are the most secure. I just think it is too risky especially with the price going up and up.
I really appreciate the transparency. So few people seem to be willing to go into the specifics regarding their portfolio. You mentioned moving some money out of Bitcoin and into other currencies. Are there any that you are following that might be a next step for you? I’m curious to know.