Here’s why I’m staying away from bitcoin’s madness
Its value fluctuates wildly. And that’s only the start of the problems, says David Court.
At the time of writing, one single bitcoin is worth US$36,841.20 (NZ$50,486.81). By the time this article is published today that price could have doubled, or crashed altogether. I have no idea.
But I am sure about one thing. I will not be investing in bitcoin. Not again. I rode the previous bitcoin bubble, and it was an emotional rollercoaster that left me exhausted.
My investment of about NZ$1000 in June 2017 – when bitcoin was worth roughly US$2500 – was a modest one. And I easily doubled my money in the few months I held on to my bitcoin.
On paper, it was a good investment. But the reality was a different story. Had I not got spooked by its volatility, and cashed out when there was a sizeable price drop thinking the bubble had burst, to later reinvest a few days later at a higher price, I’d have made 10 times the amount I did.
Quick recap, for those who can’t remember what happened: bitcoin’s previous ‘‘all-time high’’ was back in December 2017, when it reached US$19,783.06.
The next day, it lost a third of its value – dropping to below US$14,000. And dropped another 50 per cent in the following 16 days, to under US$7000.
Fortunately (for my sanity) I had cashed out a couple of months earlier. I came to the conclusion that it dominated way too much of my life. I’d check the bitcoin price first thing in the morning and last thing at night – and a couple of dozen times in between.
The way bitcoin’s value dominated my thoughts was only half the story, though.
I didn’t HODL (Hold On for Dear Life) like true bitcoin believers do, because bitcoin is not a technology – or currency, or commodity, or whatever – that I believe in.
I think of bitcoin as a digital Ponzi scheme that has made a lot of early investing nerds very rich, and hasn’t done a lot else.
Yes, it looks like a good idea on the surface. A decentralised currency that relies on blockchain for validity and security is a good idea. However, the reality is that it’s a technology/currency (or whatever) that’s not fit for purpose.
Firstly, it’s way too volatile. Which is a huge problem as a currency’s single job is to represent worth.
At the time of writing, just 20 bitcoins is worth enough to buy an average house in Auckland (NZ$1m). Tomorrow, 20 bitcoin could buy you two houses in Auckland; or not be worth enough to meet a bank’s loan-to-value requirements.
Secondly, it’s too slow. Bitcoin’s decentralised nature means it can
I rode the previous bitcoin bubble, and it was an emotional rollercoaster that left me exhausted.
only handle 4.6 transactions a second. This, obviously, makes it unfit for purpose as a currency used for everyday purchases.
Imagine trying to buy a coffee with 0.00088 Bitcoin (NZ$4.50) and having to wait for 10 minutes (on average) for the transaction to be completed. It just doesn’t work. A centralised currency transaction system like Visa, for comparison’s sake, can handle more than 65,000 transactions a second.
Finally, if you lose access to your digital wallet, there’s no way of getting your bitcoin back. There’s no centralised bank to verify legitimate claims of lost login details, and no way to prove that an account is yours.
Current estimates suggest there are nearly 4 million bitcoins that are lost forever. That’s NZ$200b at today bitcoin’s value. Worse still, lost bitcoins account for roughly 19 per cent of all bitcoin that will ever be produced (21 million).
Madness.