Crytocurrencies Series

Bitcoin, Ethereum and Other Crytocurrencies: Real or Bubble?

If you have been following my blog, you probably realize that I am a conservative investor who loves to buy investments and hold them long-term.

But once in a while I think about if there are other ways to generate higher returns.  When I talk about higher returns, I mean…

MORE THAN 20% OR ABOVE PER YEAR

The only one I came across lately that is actually accessible to me or any other self-directed investor is:

Bitcoin

bitcoin-e1466596991401

Bitcoin is a decentralized and deregulated virtual currency, or a crytocurrency that allows people to purchase goods and services online.  Although bitcoin is still not widely accepted, there are minute number of online and offline merchants that accept bitcoin such as Expedia and eBay.  In fact, TenX, a technology company based in Singapore, has made cryptocurrencies spendable anytime anywhere with the TenX wallet app and debit card system.

Pursing this further, the growing popularity of bitcoin has pushed the price of bitcoin from $122 USD in 2013 to $5714 USD today.   As a result, it is suggested bitcoin would hit one million dollars.   Similarly, there are currently over fifty hedge funds that are dedicated to crytocurrencies because just bitcoin alone has grown over

4580%

in the last four year.  No investments could generate this much return.

Given these points, it seems like bitcoin is getting more popular and it is time to jump on the BANDWAGON to invest in bitcoin.

But is it true?

Well! Before we determine whether bitcoin is a great investment, let’s see the practicality of bitcoin.

Before anyone can use bitcoin, they have to purchase bitcoin on bitcoin online exchanges and Bitcoin ATM with REAL CURRENCIES.  Once they have downloaded a Bitcoin wallet on their phone and purchased bitcoin, they are ready to use their bitcoin.

When anyone walks into a bitcoin-friendly retail store who wants to use bitcoin, he/she just have to scan the QR code destined to their Bitcoin Wallet to the merchant’s QR code and the bitcoin is sent to the merchant.  However, the cost to purchase in bitcoin is MORE EXPENSIVE THAN USING REAL MONEY.

Screen Shot 2017-10-19 at 10.24.46 AM

(Source: CNBC Youtube Channel)

Ouch! That 31% premium is A LOT for an average person.  I know I won’t pay with bitcoin.

But this is not the complete story.

You see, there are people who bought bitcoin when it was $500 USD and there are people who bought bitcoin when it was $5000 USD.

For someone who bought bitcoin when it was $500 USD, each American dollar was worth 0.002 bitcoin, whereas each American dollar was worth only 0.0002 bitcoin if he/she bought bitcoin when it was $5000 USD.

Therefore..

People get more value from bitcoin if they purchase bitcoin at higher prices.

Referring to the above example, I think the reporter bought her bitcoin when the price was still very low.

If she bought her bitcoin when the price was $500 USD, she would need 0.01906 bitcoin to finish the transaction.

20171019_213835
I did cross-multiplication. Remember high school math everyone?

On the other hand, the reporter would ONLY NEED 0.001906 BITCOIN if she bought her bitcoin when the price was $5000 USD.

20171019_214415

That was why she had to “pay” a premium for her purchase above.

But what about small businesses? Does bitcoin benefit them?

Let’s say a customer has purchased a service for $15 USD, this would be 0.0026408451 bitcoin with the current price of $5680 USD assuming there are no processing fees associated with this transaction.

Likewise, let’s assume the merchant converts bitcoin to cash at the end of the business hour and the price of the bitcoin price increase to $5900 USD, the merchant would receive $15.58 USD.  Not bad right?

But if the price of bitcoin drops to $5300 USD, the merchant ONLY receives $14.00 USD.

As a result, merchants ACTUALLY BENEFIT from customers paying in bitcoin as long as the price of bitcoin does not drop significantly.

Ultimately, I think bitcoin, ethernum and other crytocurrencies are real and they are going to be our everyday alternative payment solutions in the next twenty years.  They may not be widely acceptable now, but I believe most companies would accept crytocurrencies in the future.

All things considered, I would invest in crytocurrencies because I believe the price of crytocurrencies would just keep on rising due to their popularity.

In fact, the price of crytocurrencies would rise to the point where only the upper-middle-class and the wealthy can afford crytocurrencies.   Not everyone has thousands of dollars of spare change to purchase virtual currencies when they can use real currency to buy things anyway.

Therefore…

Crytocurrencies are the currencies for the rich.

 

In the next post, we will explore where to buy and sell crytocurrencies and the other crytocurrencies available other than bitcoin.

So have you heard of bitcoin? Could you imagine yourself using virtual currency to make a purchase? Please leave your comment below! Catch you on the flip side!

5 thoughts on “Bitcoin, Ethereum and Other Crytocurrencies: Real or Bubble?”

  1. The whole cryptocurrency market is not a bubble. Some individual coins are however.. and to be honest classic btc might become one. Mainstreamerw just blindly buy it without knowing about its downsides

    Like

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