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Reader says...
I should have invested in Bitcoin when my brother in law told me years ago.
Really regret.
I think you mean you should have "speculated" in Bitcoin. ;p
When we buy something with nothing more than the hope that we would make money from it (i.e. that its price would go up), we are speculating and not investing. :)
(Actually, the same goes for selling something. Think stock market. Think short sellers.)
It is like buying 4D, TOTO or Big Sweep.
Yup, if you have bought some Bitcoins, you would have won the lottery.
That is what it is.
A lottery.
I don't mind a bit of speculation but we have to know what we are doing.
We have to know that we are speculating and not investing.
I see even financial bloggers getting a bit mixed up sometimes.
Sometimes, we see a blend of investing and speculating going on which isn't anything wrong per se.
We just have to know what is going on.
Anyway, read this blog to have an idea what I am talking about:
Centurion Corporation to double in price!
(And also this blog:
Investment philosophy and property market.)
Bloggy Award
40 comments:
Hi AK,
If everyone knows that Bitcoin is going to be 11k today.. Everyone would have jumped into the ship when it's $10 each. Having that said, it will also mean that Bitcoin will be worth more than it is today and the situation is far more chaotic than it is today.
Well. Many are speculating that it would go up to 100k; so to most who just boarded the ship. They're having this hope in their arms that it would be 100k.. To each it's own :p
Even the First World countries and the world's richest persons look like paupers when compared with the market cap of Bitcoins. It's difficult to accept that all of US$190b could just magically appear out of less than than thin air:
Bitcoin now bigger than Buffett, Boeing and New Zealand economy
Here are five things that have been eclipsed by bitcoin in terms of market capitalisation: New Zealand's GDP. The South Pacific nation's farm-and-tourism-led economy is valued at US$185 billion, according to World Bank data as of July, putting it some US$5 billion below bitcoin. The cryptocurrency's market cap is also bigger than the likes of Qatar, Kuwait and Hungary.
Bitcoin's run-up has even seen it valued more highly than two of the world's most influential banks. Goldman Sachs Group's market cap was US$97 billion as of Friday, while Zurich-based UBS Group came in at about US$67 billion. Add those numbers together and it still falls short of bitcoin.
They sit atop Bloomberg's Billionaires Index, but even if Bill Gates and Warren Buffett pooled their fortunes they wouldn't have enough to buy all the bitcoins in circulation. Mr Gates is worth US$90 billion and Mr Buffett has US$83 billion, according to the index.
Not even Queen Elizabeth II could get them over the line if she brought her US$383 million to the table.
Hi SD,
Of course, everyone is entitled to his or her opinions and beliefs.
How much is a Bitcoin actually worth?
I know it is a virtual currency but unlike a country's currency, it is difficult if at all possible to estimate its value.
When value is unknown and we are relying on guesswork, it is a stretch to call it an investment.
On bitcoin: "Stay away from it. It's a mirage basically," Buffett said on CNBC in 2014.
Source:
https://www.cnbc.com/2017/09/07/bitcoin-up-sevenfold-since-warren-buffett-warned-digital-currency-was-a-mirage.html
Hi Laurence,
This is, in my opinion, another Black Tulip incident but one of gigantic proportions.
Anyway, I am just an amateur gardener.
So, what do I know? ;p
i always tell people who like to speculate... do it with a small sum of money that you can afford to lose so you will have no regret in live.
Hi seefei,
Long time no hear. :)
Yes, it is all about position sizing:
How to size our more speculative positions?
Vincent Chan H S:
Just need follow AK’s pyramid.
Just use the portion meant for speculation to buy.
Rest don’t throw in.
Sleep easy at night.
Leo Chin Ho:
Bitcoin is a high risk profile. You need to do tons of research and convince yourself why the price is justifiable. I have seen many people going in for the idea of 'free money'. However, if you never see the purpose/intrinsic values of the bitcoin, you will end up just looking at the price movement and it does not contribute to your growth but purely rely on luck.
And bitcoin is not something worth picking up unless you are young and tech savy or with lots of money to throw into sea. Otherwise, i rather you go for safe investment tools.
I can tell you hours and hours of stories and how wonderful Cryptocurrencies are (Bitcoin is just like 1% of the amazing technology) but I still heavily encourage people to have a balance portfolio and not just create a pure 'blockfolio' like me.
Cheow Xunchen:
I don't think we should just dismiss Bitcoin as 'speculation'. Blockchain technology isn't just a worthless fad. Big banks such as JP Morgan have launched payment services utilising blockchain tech. Of course if you just buy it blindly, that is speculation. But people who saw its potential and chose to invest in it, that to me counts as investing. I don't think we should begrudge them their success and just call it a lottery ticket. If someone invests in a company that I don't understand, and the stock price goes up 10 times, does it mean I should call it speculation because I don't know what it is? Maybe the other person did his homework, understood the company and invested accordingly. Just my two cents :)
Hi AK,
As per what you said in the your blog post on "How to size our more speculative positions?". The key take away is, should anyone speculates Bitcoin or any "assets". Taking their risk appetite into consideration, do it with the sum they'll be able to not lose sleep about.
You're right. There is actually no "value" tied down to Bitcoin. It had been some time and there has been a big debate between "investors" in the block chain technology onto how it will revolutionized the world and those who dismiss this as a the tulip incident.
To me personally, so long the person who's in the game know what they're doing and is able to accept the loss. They should be fine :)
Hi SD,
I understand Bitcoin is a virtual currency.
Like any currency, if there is demand, its value goes up.
This is how a country's currency derives some of its value.
If there is demand for your country's goods and services, there will be demand for your country's currency because it is required to pay for those goods and services.
This is real demand.
However, a country's currency can also be driven up due to more speculative demand.
What kind of demand is driving Bitcoin higher?
I wonder. :)
I feel that mindless greed and the irrational fear of losing out is driving Bitcoin higher.
The atmosphere is not almost manic.
It is manic.
However, instead of buying precious metals like gold and silver for insurance, there could also be some people who are buying Bitcoins as an insurance against the very flawed fiat currencies.
Is it a case of die, die must buy?
just "gamble" the amount you can afford to lose. I am vested in ETH but i limit to less than $5k, as mentioned its speculative natural and no "interest" or dividend on my holding for me to plough in more money/ for now its a punt. until the big boys fully grasp and embrace blockchain. it will alway still be classified as speculative.
those holding on. huat ah :P
Hi JQ,
Congratulations! Gong xi gong xi! :D
The vice president of the European Central Bank (ECB) has said that investors are taking a ‘risk’ by buying bitcoin at its high price.
Speaking to CNBC on Wednesday, Vitor Constancio, said:
"It’s a very particular asset, it’s a speculative asset by definition looking to the developments in its price. Investors are taking that risk of buying at such high prices."
Constancio’s comments come at a time when the digital currency is experiencing a surge in value. Earlier today, it was reported that bitcoin had risen to over $11,000 along with a rise in various alt-coin prices. To date, the cryptocurrency has increased by over 1,000 percent, a colossal undertaking considering it was trading at $1,000 at the beginning of the year, and has overcome numerous obstacles.
Some, though, are still expecting great things from bitcoin. Mike Novogratz, a billionaire investor and hedge fund manager, believes that it could ‘easily’ rise to $40,000 by the end of 2018.
Central banks, though, have continually been reluctant to embrace the market. The ECB vice president said earlier this month that digital currencies will never replace the fiat system, adding that they were a ‘misnomer‘ merely used as a speculative asset.
AK,
small small micro pun only lah on ETH. If you look at BTC, i saw it swell up but i just didn't have the guts to buy.
You have been quiet lately.. I am very sure you are reading up on cryptocurrencies?
Regards
JQ
Hi JQ,
Blogging regularly was beginning to feel tiresome.
I knew that if I didn't slow down, I might stop blogging altogether.
Hence, the laziness. ;)
As for cryptos, I have read enough to know that many people do not understand that they are speculators and not investors. ;p
There are even people who talk about Bitcoin as being the next Amazon and Apple but it is not even an apple to apple comparison.
Amazon and Apple are businesses which can be valued.
Lee We:
I think the reader will be among one of the last which will buy bitcoin at its peak price
AK:
I hope not. It is a game of musical chairs.
Lee We:
The last who leave the party will have to clean up the mess
You are an experienced investor, and will know to use bitcoin (or any other instrument) for speculative trade, if u wish to.
AK:
Aiyoh. I am an IT dinosaur. Really blur. :(
Lee We:
btc is just too "noisy" to be ignored. unless we are at W.buffet's level of "zen", we commoners will just be lured in. so i rather be in it earlier than later.
AK:
I blur until I zen. :p
One reason to buy bitcoins are a valuable asset is that only 21 million of them will ever come into the world—and most of them are already here.
So-called gold bugs like to own the precious metal because it is an asset whose value is not controlled by governments.
Even if a country is ravaged by war or its profligate central bank prints too much money, the value of gold (unlike the national currency) will remain.
Bitcoin has many of the same qualities. It exists on a decentralized computer network that transcends national borders, and there is no Federal Reserve-like authority that can devalue it.
Source: Fortune.com, August 2017.
Over its nearly decade-long history, bitcoin has been prone to spectacular crashes.
In 2013, for instance, the currency went on a run to over $1,100 only to tank to $700 a few months later, and then bottom out near $200 in early 2015. There is no reason this couldn’t happen again.
This may sound obvious but, as a form of money, bitcoin might be the most intangible stuff in history.
Even paper money or securities can be presented to a central bank or company in the hopes someone will redeem them. No such possibility with bitcoin.
Digital currency is just a piece of code out there on the Internet (or in special digital storage vaults to prevent hackers from stealing it), and there is no country or company you can ask to honor it.
Source: Fortune.com, August 2017.
It seems that many people have the impression that Bitcoin equals to Blockchain; and that because Blockchain is touted worldwide as the next promising disruptive technology, therefore Bitcoin is as well.
As of today, there are 1324 different cryptocurrencies "trading" in the markets. And many new versions of cryptocurrencies continue to be plucked right out of thin air by enterprising people worldwide.
Venezuela's currency BolÃvar Fuerte has lost 99.99% of it's value against the USD since August 2012. And just one month since 7 Nov 2017, it has depreciated 60%.
Today, the Venezuelan President declares the country will launch a brand new Cryptocurrency named Petrocurrency. This creates a precedent for all other corrupt or bankrupt nations to also create their own worthless cryptocurrencies for the world to "invest" in.
Venezuela to Create a Cryptocurrency Amid Bolivar's Free Fall
Hi Laurence,
And the confused do not know they are confused. ;p
"People get excited from big price movements, and Wall Street accommodates," Warren Buffet.
“Avoid bitcoin like the plague. Did I make myself clear?” Bogle, founder of Vanguard Group Inc., said.
“Bitcoin has no underlying rate of return,” said Bogle, 88, who started the first index fund in 1976.
“You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.”
“You can’t value bitcoin because it’s not a value-producing asset...it's a real bubble in that sort of thing,” Warren Buffett.
Cryptocurrencies are not tangible investments.
They don't generate earnings or pay dividends. How do you really value them if they have no intrinsic or "book" value?
And people who buy bitcoin are simply betting that the price will go up.
Anyone is free to speculate on anything from land to soccer matches. It's human nature. Yet don't confuse a cryptocurrency with something you can hold in your hand -- like gold.
Source: Forbes, November 2017.
Critics warn of a bubble.
"The relatively high volume of cryptocurrency turnover, against limited real-world use, suggests that many buyers are seeking speculative gain, never intending to use cryptocurrencies to make a real-world transaction," UBS analysts said in report quoted by CNBC.
If you are looking to draw a parallel to traditional assets, do not use currencies like the USD.
Fiat currencies are backed by assets and the economic power of the issuing country.
If a country’s economy sees outsized growth, its currency will appreciate.
If the economy slumps, it’ll devalue.
Since there is no economy behind Bitcoin, that model won’t work.
Instead, compare Bitcoin’s valuation to the fine art market.
Like Bitcoin, a great painting has no asset-backed value, but it is a scarce resource.
The value is entirely backed by the demand for the painting.
If the demand wanes, the price goes down.
If the demand waxes, the price goes up.
Forecasting or evaluating Bitcoin prices based on fundamentals is silly since it doesn’t have any.
When looking at demand-backed currencies, you are playing a game of forecasting hype.
You have to consider the whims of the market and potential technology growth.
Stephan Goss, CEO of Zeeto.
Source:
Fortune, December 2017.
As bitcoin hits the stratosphere, there are fears an economic bubble is forming as it becomes treated less like a currency and more like a store of value, open for speculators making ever increasing bets on how far it can rise.
Economists have compared bitcoin’s meteoric rise with past bubbles, such as the tulip mania of the 17th century and the dotcom bubble that began in the late 90s with the Nasdaq index in New York and burst in 2000.
Both examples foreshadow a painful collapse for a currency that has no intrinsic value to those who hold it beyond that ascribed to it by a community of owners.
Should they realise the emperor has no clothes en masse, there could be a rude awakening.
Bubbles are driven by sentiment and stories, and bitcoin has a great story with a lot of mystery and spectacle to it.
Source:
The Guardian, December, 2017.
Cheow Xunchen:
What I find strange is that I have spoken to people who tell me bitcoin is worthless.
Then when I ask them, do you know how it works? They tell me that they don't.
Then how do they know it's worthless?
It would be more accurate for them to say, "I don't know what Bitcoin is worth." Rather than saying, "Bitcoin is worth nothing."
AK:
Ah, I know where you are coming from. I will treat these comments the same way as I treat comments on the CPF as being a PONZI scheme. :p
Cheow Xunchen:
Exactly, we need to understand something before we can decide whether it's good or bad.
Or, if it's too hard to understand, then it's also ok to say 'I don't know' and walk away from it.
AK:
I buy some gold and silver as insurance against flawed fiat currencies.
So, I can understand the appeal of bitcoins on that level although I would still go with gold and silver. :p
I also understand that increased demand for a scarce resource will drive up the price rapidly.
When people say they are investing in gold and silver, usually, they mean they are trading or buying these as insurance.
In both instances, there is a speculative flavor.
I am inclined to believe that the same goes for bitcoins.
Everything will be bubble eventually as it go higher , so is dow or whatever. The real question is to make hay while the sun shine instead of forcasting a rain when the sun is bright early in the morning(bubble).
Dont let doomsayer scare you, like when market has crash, and people are still shouting the bottom is still far away. And you got scare to buy only to regret later as it soar when bottom hit. Ditto to this bit coin.
We know all bubble will burst eventualy, but the real question is who will hold the baby when the music stop. The bubble is in it early stage far from bursting. Just speculate with trailing stop will be fine. As profit rise, just take out all your cost and left the casino money to roll if u are greed for more. What can you lose when your cost is back to your bank account?
Don't get scare by people shouting here and there, anyway just lose the money you can afford to lose, what is the big deal.
The best time to buy coin is in 2009, the next best time is NOW, dont miss the train. My only regret is not buy in 2014 when I come to know this, only load in 2016, still loading and believing it is another dotcom bubble, some will live to be King of the rest. Just buy the blue of coin, and not other will be fine.Good luck.
Some say the bubble is going to burst and some say it is far from being a bubble.
Who to believe?
Ultimately, we should have a plan, our own plan, because that is the only way we can sleep well at night. :)
Reader says...
I love your clarity in life.
AK says...
I try not to be sucked into whirlpools.
Reader says...
I am curious about this investment.
AK says...
It isn't an investment...
We can invest in blockchain technology but we cannot invest in bitcoin.
Anyway, this will end badly and those who are late to the party will suffer.
Greed is making everyone mad. An unknown company calling itself a Crypto company managed to list in Nasdaq US on Wed at $5. By yesterday, it had hit a high of $142 (+2840%) after the CEO announced it had just bought over a SG crypto company Ziddu.com (which he himself owns in the first place and which is just an empty shell). But that still made everyone go wild over the acquisition.
A Small Fintech Stock Surged 2,600% in a Week After Announcing It’s a Crypto Company
“LongFin joins a number of small companies that have seen their share prices rise by a factor of ten in weeks of months after announcing affiliation with blockchain technology. Simply adding the word “blockchain” or “bitcoin” to the name of the company has achieved rapid stock price appreciation as well for some of these companies.
Firms such as Riot Blockchain formerly a biotechnology firm, or HIVE Blockchain Technologies which used to be a gold-mining company, saw their shares rise five to 10-fold over the past several months.
A rapid rise in stocks such as LongFin is reminiscent of internet frenzy of the late 1990s, when companies, seemingly without a viable business models went public, making their founders paper millionaires.”
Hope this whole Bitcoin thing collapse soon so that all the greedy people learn a lesson they'll never forget.
MAS reminds the public that cryptocurrencies are not legal tender. "They are not issued by any government and are not backed by any asset or issuer."
In an advisory issued on Tuesday, the central bank said the public should act with extreme caution and understand the significant risks they take if they choose to invest in cryptocurrencies.
Indicating that the recent surge in the prices of cryptocurrencies was driven by speculation, the MAS cautioned: "The risk of a sharp reduction in prices is high. Investors in cryptocurrencies should be aware that they run the risk of losing all their capital."
Source:
http://www.businesstimes.com.sg/banking-finance/bitcoin-not-a-currency-investors-risk-losing-all-mas
Bitcoin fell more than 10 per cent to below US$14,000 on the Bitstamp exchange on Friday, extending overnight losses.
It was last down 11 per cent at US$13,872.
The cryptocurrency, which was at about US$1,000 at the year's start, had climbed to a record high of US$19,666 on Sunday in lead up to exchange giant CME Group's launch of bitcoin futures before losing steam.
Bitcoin is known to go through wild swings. In November, it tumbled almost 30 per cent in four days from US$7,888 to US$5,555. In September, it fell 40 per cent from US$4,979 to US$2,972.
Source:
http://www.businesstimes.com.sg/banking-finance/bitcoin-extends-losses-slips-below-us14000-on-bitstamp-exchange
"It seems that many people have the impression that Bitcoin equals to Blockchain; and that because Blockchain is touted worldwide as the next promising disruptive technology, therefore Bitcoin is as well."
People who have done their due diligence in Bitcoin would obviously know that Blockchain isn’t synonymous with Bitcoin. But Bitcoin is backed by Blockchain tech. So its value is partially tied to the viability of that tech. Without this tech as a core component of bitcoin transactions, bitcoin would really be worthless. Let’s say today I invent a currency called Fluffcoin and it isn’t backed by any sort of tech infrastructure. No one would buy it for even 1 cent. So yes, Blockchain tech adoption by financial institutions does indeed reinforce the perceived viability of Bitcoin indirectly, although obviously it doesn’t mean that if X number of institutions adopt Bitcoin, then Bitcoin must rise by Y amount in value.
As it stands, bitcoin transactions, instead of going through a traditional middleman, are verified by ‘miners’, who are in turn 'rewarded' with Bitcoins. Any of this info can easily by googled so I’m not going to go on and on about it. What I will say, though, is that most people I’ve spoken to don’t even know the basics of this and yet are keen to glorify or condemn Bitcoin. AK has clearly done his homework so he is well qualified to give his educated opinion. However, comments that go, ‘I hope Bitcoin will collapse soon so people learn a lesson for their greed’, are just cases of sour grapes. You guys do realise that a lot of early investors in bitcoin have already cashed out a lot of their gains right? Sorry to disappoint you, but even if Bitcoin collapses, they would still have realised gains that are far, far in excess of their initial investment. In my case, I entered relatively late but I’ve already cashed out of all of my Bitcoin, selling the last of it at around 16K SGD. Which is far from the peak of above 26K but I’m happy with my gains because even if Bitcoin goes to zero tomorrow, I’ve already made off with several times my initial investment, and nothing can change that.
Nevertheless, people who are considering entering Bitcoin at this point in time may want to educate themselves first before jumping in, as it may be entering bubble territory. As with anything else, have to do your own due diligence. :) Don’t just comment emotionally without any logical basis lol...
I think the key is to understand that Bitcoin is for trading.
Bitcoin is not an investment per se.
People can invest in Blockchain but with Bitcoin, it is really a trading game.
So, when people tell me that they invest in Bitcoin, I get the impression that they are either confused or they are out to confuse people.
We should remind ourselves that:
"The trading market is occupied by very large players who are just waiting for newbies to come in and throw their money away by trading aimlessly."
Know what we are doing and have a plan.
January’s cryptocurrency selloff got fresh impetus on Tuesday when Bitcoin slumped as much as 25 percent, as the prospect of regulatory crackdowns appeared to spread.
While the largest digital coin was down 25 percent at $10,338 as of 4:37 p.m. in New York, it was still at the lowest level since early December, according to composite pricing on Bloomberg. As Bitcoin halted its two-day rally, rival cryptocurrencies also tumbled. Ripple sank as much as 40 percent and Ethereum dropped 26 percent.
Source:
https://www.bloomberg.com/news/articles/2018-01-16/cryptocurrencies-resume-slide-as-bitcoin-tumbles-to-december-low
Reader says...
saw your post on bitcoin... it is easy to see in the rear view mirror....
AK says...
Actually, I first blogged about Bitcoin and why it was not an investment a year ago.
I said it was like buying 4D, TOTO or Big Sweep and that even some financial bloggers got mixed up thinking it was an investment. ;)
See also:
My final word on Bitcoin and friends.
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