A few days ago our tech expert Sam Volkering and I had an email exchange about bitcoin. Sam is a friend going back about six years. I rely on him for help understanding what’s going on in the technology world, as do his tens of thousands of subscribers.
It occurred to me that our discussion is a far more useful way for you to discover and understand bitcoin than the usual articles. It tackles the real questions rather than just providing information. I’ve reshuffled the exchange into a Q&A so it’s a little easier to read.
I hope you enjoy it. And I hope it convinces you to take the plunge into bitcoin. Or at least dip a toe in to make sure the water is to your liking.
Nick: Bitcoin is up hundreds of per cent since you first wrote about it. Does this mean you’re rich and going to retire imminently?
Sam: Nope, it doesn’t. I’d have to sell back to fiat money to do that. And there’s no way I’m ready to do that yet. Ideally I’ll never sell it back to fiat, I’ll just use the bitcoin to buy things in the physical world. Besides, cryptocurrencies are just getting started.
Nick: You keep saying that, but I don’t know many people who have actually bought a bitcoin yet.
Sam: That’s true and that’s exciting. You see a lot of people simply don’t know about it still – but when they do I think it’s going to explode in price even further.
And of course many people who buy bitcoin don’t exactly want to talk about it, for a couple of reasons. One is they even still don’t really understand it, the other is they don’t want the authorities to know about it either.
A reason why people still haven’t bought some is also a lack of understanding why to buy bitcoin.
There are three sides to bitcoin and any confusion comes from mixing the three. You can use bitcoin, trade it, and invest in it. I’m interested in all three.
Investing in it is simple. You buy the bitcoin, stick it somewhere safe like a cold storage device or portable USB drive, and then sit and speculate for the price to rise. Given the number of bitcoin is limited and usage is increasing, the price should rise in the long term – of course with plenty of huge bumps in the road.
Nick: This is a strategy someone I know is using. He doesn’t understand bitcoin, doesn’t know how to use it, but he’s still made a bundle of money on the simple economics of it. The thing is, he’s relying on the supposed benefits of bitcoin holding up. Will they?
Sam: Bitcoin is the first of its kind, so it has encountered plenty of trouble along the road already. But its premise is solid and it works. You can think of any problems now as teething problems. Bitcoin is really so new and so young still that it’s really in its infancy. But as it matures and “grows up” it’s going to have devastating implications for the traditional banking and finance system.
Nick: Which brings us to the other two options. I’ve written about bitcoin as an opportunity to trade geopolitical uncertainty. Crises in Venezuela, Cyprus and the Middle East all made bitcoin surge. China’s capital controls too, as people try to get their money out of the banking system. What did you think of my idea to use bitcoin as a way to profit from this sort of thing happening in the future?
Sam: It’s a great idea, but there’s no way you can lay claim to it! There’s something you should note about bitcoin. Unlike other ways of hedging against a crisis, bitcoin becomes popular during a crisis because it is useful then, not because of speculation.
People in Venezuela don’t use bitcoin as a financial position. They actually buy things online, from the clandestine “deep web” and smuggle them across the border. To Venezuelans bitcoin is actually safer and more trustworthy than their own national currency.
The same goes for the Chinese and Japanese. They use bitcoin, just not invest in it. This makes bitcoin a much better way to profit from crises. Bitcoin has many advantages over gold, as you pointed out in your article. Especially these days. It’s electronic, instant and accepted by some commercial entities as payment. You can buy and sell from the comfort of your own home too. And unlike other markets like stockmarkets or fiat currency markets, you can buy and sell bitcoin 24 hours a day, seven days a week, 365 days a year.
Nick: Is bitcoin a way to trade a banking crisis in Europe?
Sam: For sure! That could be an extraordinary trade. It certainly worked each time Greece struggled to reach a deal with its creditors, as is happening now. And during the run on Cypriot banks in 2013 bitcoin’s price went nuts! A major European crisis would be the same effect many times over.
Bitcoin is already up and running well in Europe. As Charlie Morris from The Fleet Street Letter keeps telling us, you can buy wine in Chamonix with bitcoin. And you told me there’s a coffee shop in Bodrum, Turkey where you saw the little “bitcoin is accepted” symbol – a combination of a “B” mixed with a dollar sign. One of the big four accounting firms has a bitcoin ATM in its Switzerland offices, and there’s one in Athens.
Bitcoin ATM company Bitlish also plans to open over 5,000 bitcoin ATMs across Europe this year. And there are already 68 operational in the UK.
If a banking crisis breaks out in Europe, it would dwarf the crisis of Venezuela and Cyprus. And bitcoin presents a real solution to the people left high and dry by the failures.
If Europeans take up bitcoin en masse, the surge in demand would be utterly extraordinary, sending the cryptocurrency up many fold.
Nick: So that’s trading bitcoin. But what about using it? I can only think of very few people who have used bitcoin. One of them used it while travelling. In each country she visited, she paid her friends bitcoin in exchange for the local currency, avoiding any fees, commissions or exchange rate spreads. It’s a genius idea.
Sam: Bitcoin is following the typical transition every new technology takes from unusable but interesting to revolutionary. That’s a good thing – bitcoin’s premise had to be tested in theory before we make it part of our economy. But if you take a look at what bitcoin and blockchain technology is being used for already, it’s remarkable. What’s to come is truly mind-boggling.
I think the practical benefits of bitcoin and blockchain are too big for anyone to oppose them successfully. But your readers probably don’t care about the way banking will be changed or how contracts could become self-fulfilling. They want to know how to use bitcoin now if they’re going to bother buying in.
Well, your friend’s use of bitcoin internationally is a great start. You can swap bitcoin with travellers to get local cash. In my Australian home the cash foreign exchange counters are absurdly expensive. And bitcoin is divisible, so it’s easy to match whatever your friend has in their pocket.
Also there are new companies currently developing cryptocurrency payment cards, just like your VISA card. All you do is load up a digital wallet on your phone with your bitcoin for example. That’s linked to a payment card the company issues you. Then you use it at any merchant that accepts VISA and instead of deducting your bank account, it just transacts using your bitcoin. That means no exchange rate commissions, no bank charges, no interbank rate spreads, no middlemen and financial intermediaries.
You can use this payment card anywhere in the world too. That’s what’s great about bitcoin. It’s borderless and cuts out the “traditional” banking system.
The people, funds and ideas behind making bitcoin and other cryptocurrencies useful mean that demand for them will explode soon.
Nick: What should investors, traders and users of bitcoin do now if they’re interested?
Sam: I’ve put together a report on the future of bitcoin and other cryptocurrencies here. Part of my job at Revolutionary Tech Investor is to guide subscribers through these questions. There are certainly high risks and many pitfalls alongside the extraordinary gains for investors and traders. My “how to” videos are designed to clear things up.
But bitcoin is just like every other technology. Just trying it out is the key. SO I always say if your starting out start small and get used to it… then ramp it up. There are so many uses and opportunities; one of them is bound to suit you. If not now, then in the near future. And starting out in bitcoin is very cheap. You can buy just a few pounds worth very easily. And setting up a wallet to store your bitcoin is free – can’t get more cost-effective than that.
As more and more uses for cryptocurrencies develop, you’ll be ready to take advantage. Not to mention the extraordinary gains I’m predicting for investors.
Nick: It’s a great formula, really. For now, bitcoin isn’t terribly useful for people living in stable places. But you have the smartest people around the world working on ways to make bitcoin useful. You have politicians and central bankers destroying their currencies and banking systems, to which bitcoin offers the best alternative. And you have the inherent economics of bitcoin.
Everything stands in its favour.
Sam: That’s why the price keeps surging. And that’s why I think it’s best to get in now before the whole story goes even more mainstream.
Until next time,
Nick Hubble
Editor, Capital & Conflict
Category: Investing in Bitcoin