Bitcoin trading journal: quest for 16 doubles
I am posting this thread to log my Bitcoin transactions. I intially bought about 20 dollars worth of bitcoins (0.1 bitcoin) on a lark and for coffee money on November 1st and sold it for over 2.5 times the money CDN today.
A rough calculation tells me that if I roughly double my money a total of 15 to 16 times starting from the beginning, it will exceed one million dollars.
An analysis of bitcoin's expected performance is based on these observations:
1. Bitcoins have no intrinsic value
2. Bitcoins have appreciated exponentially over the past few years and particularly over the past few months
3. There is a limited total number of Bitcoins now and for the future
4. Anyone (or any country) could make their own digital currency, using the exact same algorithm as Bitcoin uses, and it would be equally as legitimate, or illegitimate, as Bitcoin is. I could take the Bitcoin software, rename my new currency Bitcoin Junior, and there is no reason other than herd behaviour why it should not be as valuable as Bitcoin. So although the total number of Bitcoins is limited, the total potential number of cloned Bitcoin currencies is infinite.
5. A change in government regulations could immediately make the value of Bitcoins zero, at any time.
6. Past experience shows that people will buy into a bubble (gold, real estate, Dutch tulips, tech stocks etc.) just because the price is going up. Most of them are financially illiterate.
7. Bitcoins are currently a little hard to buy - you have to jump through a few hoops to set up an account, transfer money, etc. It is getting easier to buy as time goes on, so the number of people able to buy Bitcoins will go up
8. Due to the limited number of Bitcoins, relatively illiquid market, and investor greed and stupidity, the value of Bitcoins has fluctuated wildly over brief periods of time. For example in the past week or two I have seen intraday price swings of 20% to 30%.
9. A few wealthy people and institutions such as hedge funds may be accumulating Bitcoins. Since the market is illiquid, they will not be able to buy or sell any large amount of Bitcoins without moving the price. This will give an edge to the small investor.
10. The majority of Bitcoin trading appears to come from the US and China, two nations not exactly known for free transparent markets or sophisticated investors.
11. Previous speculative bubbles (Bre-x, the tech bubble, gold, or the current real estate bubble) have continued for long after a reasonable investor (ie. me) would have thought the bubble would have burst.
Based on all the above it looks to me that the Bitcoin bubble will continue quite likely into the thousands of dollars per Bitcoin, with huge volatility from hour to hour and day to day, but overall going up until a final tumultuous crash, whereupon everybody will be quite surprised, until the next speculative bubble (perhaps a currency, metal, quantum bandwidth licensing rights, or an obscure stock in some foreign country) becomes the investment du jour. Anyway since my initial investment was $22.46, and I have spent decades being a long-term careful and methodical investor, the plan is to take advantage of price volatility and general investor retardation to change my $22.46 into a million dollars. If I fail I have lost nothing, and if I succeed it won't make much difference either, other than a bunch of numbers on a computer screen.
Anyway here is my trading log, all the numbers include 1.5% trading commission and all values are in Canadian dollars:
November 1st 2013: purchased 0.1 Bitcoin (via Interac payment to QuickBT.com) and transferred the 0.1 Bitcoin to my Blockchain wallet.
November 18th 2013: Bitcoin price exceeds $800.00 on some exchanges, I would like to sell my 0.1 Bitcoin, but there is a delay in transferring it. Contrary to the reported 1 hour transfer time, it takes over one day to transfer the Bitcoin to my trading account and by then the price has gone down. Lesson learned, keep my Bitcoin and/or cash balance in the trading account at all times
November 20th 2013: Sold my 0.1 Bitcoin for $58.78, and entered a limit order to buy 0.131 Bitcoins at $442.00
A rough calculation tells me that if I roughly double my money a total of 15 to 16 times starting from the beginning, it will exceed one million dollars.
An analysis of bitcoin's expected performance is based on these observations:
1. Bitcoins have no intrinsic value
2. Bitcoins have appreciated exponentially over the past few years and particularly over the past few months
3. There is a limited total number of Bitcoins now and for the future
4. Anyone (or any country) could make their own digital currency, using the exact same algorithm as Bitcoin uses, and it would be equally as legitimate, or illegitimate, as Bitcoin is. I could take the Bitcoin software, rename my new currency Bitcoin Junior, and there is no reason other than herd behaviour why it should not be as valuable as Bitcoin. So although the total number of Bitcoins is limited, the total potential number of cloned Bitcoin currencies is infinite.
5. A change in government regulations could immediately make the value of Bitcoins zero, at any time.
6. Past experience shows that people will buy into a bubble (gold, real estate, Dutch tulips, tech stocks etc.) just because the price is going up. Most of them are financially illiterate.
7. Bitcoins are currently a little hard to buy - you have to jump through a few hoops to set up an account, transfer money, etc. It is getting easier to buy as time goes on, so the number of people able to buy Bitcoins will go up
8. Due to the limited number of Bitcoins, relatively illiquid market, and investor greed and stupidity, the value of Bitcoins has fluctuated wildly over brief periods of time. For example in the past week or two I have seen intraday price swings of 20% to 30%.
9. A few wealthy people and institutions such as hedge funds may be accumulating Bitcoins. Since the market is illiquid, they will not be able to buy or sell any large amount of Bitcoins without moving the price. This will give an edge to the small investor.
10. The majority of Bitcoin trading appears to come from the US and China, two nations not exactly known for free transparent markets or sophisticated investors.
11. Previous speculative bubbles (Bre-x, the tech bubble, gold, or the current real estate bubble) have continued for long after a reasonable investor (ie. me) would have thought the bubble would have burst.
Based on all the above it looks to me that the Bitcoin bubble will continue quite likely into the thousands of dollars per Bitcoin, with huge volatility from hour to hour and day to day, but overall going up until a final tumultuous crash, whereupon everybody will be quite surprised, until the next speculative bubble (perhaps a currency, metal, quantum bandwidth licensing rights, or an obscure stock in some foreign country) becomes the investment du jour. Anyway since my initial investment was $22.46, and I have spent decades being a long-term careful and methodical investor, the plan is to take advantage of price volatility and general investor retardation to change my $22.46 into a million dollars. If I fail I have lost nothing, and if I succeed it won't make much difference either, other than a bunch of numbers on a computer screen.
Anyway here is my trading log, all the numbers include 1.5% trading commission and all values are in Canadian dollars:
November 1st 2013: purchased 0.1 Bitcoin (via Interac payment to QuickBT.com) and transferred the 0.1 Bitcoin to my Blockchain wallet.
November 18th 2013: Bitcoin price exceeds $800.00 on some exchanges, I would like to sell my 0.1 Bitcoin, but there is a delay in transferring it. Contrary to the reported 1 hour transfer time, it takes over one day to transfer the Bitcoin to my trading account and by then the price has gone down. Lesson learned, keep my Bitcoin and/or cash balance in the trading account at all times
November 20th 2013: Sold my 0.1 Bitcoin for $58.78, and entered a limit order to buy 0.131 Bitcoins at $442.00
