Bitcoin Investments

Digital illustration of house on money stack

Bitcoin Hoarders

Hoarding will have to be balanced. If wealthy individuals hoard all of the bitcoins, then people will not want to buy it, so they have to sell some at fair market rate. The price should not skyrocket too much because nobody will buy it when it does and everybody that has it will want to sell it when it does. The price should find an equilibrium. There is a finite amount of bitcoins – there will only be 21,000,000 bitcoins ever and there is currently about 14,000,000 as of early 2015. Most bitcoins have already been mined and pretty much all of it will be mined by 2024. There are currently 7,000,000,000 people on the planet. That is 0.003 bitcoins per person on the planet. That seems like a very small amount of bitcoins per person. The numbers are not really important. Give 0.003 a name, like a millibit, then there are 3 millibits per person. The numbers are infinitely divisible. So people will be able to make transactions at small increments like 0.000003 bitcoins – this is called 3 microbits. Even if wealthy individuals hoard all of the bitcoin, the majority of people will still be able to make cheap or nearly free transactions with Bitcoin since bitcoins are fluid. This will make a lot of competition for the current banking markets. It will also make competition for creditors. It may go as far as making a strong competition against national currencies.

Middle Aged & Younger Will Love Bitcoin

They don’t have a choice. They will love Bitcoin because it is familiar to value such an item in video games and even in virtual reality. Most, if not all, video games have some form of point or coin reward system. In the future, these points that people can earn just might be bitcoins or some other equivalent two-way currency. Users of video games and virtual interactive systems will enjoy being rewarded for their participation. Makers of these software systems will be able to profit from their users and in turn reward them with some type of virtual & useful currency that can be used for real tangible products. A two-way virtual currency is one that can be converted from USD and back. Most virtual currencies are one way – you can trade USD for the virtual currency but you can’t trade the virtual currency for USD. Bitcoin is different since it has so many uses.

The Bitcoin Financial System

Bitcoin is more than just a currency. It is a large virtual and real financial system. It can exist outside of the pure software world. It can be printed onto paper just like money can and be used that way. There are actual coins that contain bitcoin value on them and they are marked with a symbol that provides evidence that the bitcoins on it have not yet been spent. There are gift cards that are available online and at some retail stores that can be purchased and redeemed. In the future, there will be innovative products that will allow Bitcoin to be used more conveniently than the USD is used.

Transfer of Wealth

A lot of wealth may transfer to some of the early adopters of the technology from the hands of the current class of wealthy individuals. The late stage early adopters will gain some amount of wealth, but not that much. The very early adopters are the group commonly labeled as “techies” or “hackers” or just lucky. They are, for the most part, regular people that are interested in computer science & computer engineering. Some individuals that have large amounts of bitcoins could become billionaires if Bitcoin goes main stream. You can view the BitcoinRichList. The numbers are actually worse than what is displayed at that website. Most large holders of bitcoins have their bitcoins spread out among many different addresses. There are a small number of people that own a large percentage of the bitcoins. This is also true for most currencies and stocks.

Current Systems Are a Monopoly

People have no alternatives to the current banking systems. Will the government try to make alternatives to the current payment methods illegal? They could try to ban Bitcoin stating “Terrorists Use Bitcoin“. The USA was founded on beliefs of a free market. Is it a free market only for certain commodities? It appears as though Bitcoin has been accepted in American society. It might be too late to try to outlaw it now. Some nations are banning Bitcoin. There have been too many investments that have poured into Bitcoin since its’ inception. The amount that is getting invested in Bitcoin is nearly doubling every year and it looks as though this pattern is going to continue or accelerate.

Bitcoin Will Hold Value

Bitcoin will continue to maintain its’ price over the long run. It is unique and valuable. It can’t die because the Bitcoin network is too powerful. I don’t see that Bitcoin will be replaced since it is a protocol that can be updated upon agreement of the community. If some feature is desired and the community agrees that it is good, then it should be incorporated into the protocol. This is similar to the HTTP and WWW protocol. The network won’t be replaced by a superior technology since it can be updated. For the short term, Bitcoin will be volatile – that is, the price will fluctuate up and down. You may purchase bitcoins and find out that it lost 30% of its price in a week. However, the average price of bitcoins has steadily risen since it was first launched in 2009.

Market Manipulation

There will be a lot of rich and average people that will want to use the market to make a profit. They will be attempting to buy at low prices and sell them at high prices. This will make the market swing up and down. This will hurt the average person because they will not have the best judgement as to when to buy and when to sell. They will buy the bitcoins when they need them or at a random time they will buy them for future use. The people that buy bitcoins on a downward slope will be forfeiting wealth to the people that buy and sell stocks for profit. This will hurt Bitcoin by stopping some people from entering the bitcoin market. However, this volatility should go away as more people are in the market. More people will buy bitcoins when the price goes down and sell bitcoins when the price goes up. This will stop spikes and crashes. The more people that are in Bitcoin, the more pressure there will be on the price. Everyone will see opportunity when the price is low and buy thus bringing the price up. Everyone will see opportunity when the price is high and sell thus bring the price down. Over time, the price will continue to increase just as it has been doing since 2009.

Price

The price of a single bitcoin is set by the popular exchanges. It works similar to the stock market. People list a certain number of bitcoins for sale on the exchange. This is called a sell order. People make bids to buy a certain number of bitcoins at a certain price. This is called a buy order. If somebody places a buy order for a price at or above a previously listed sell order, then a “buy” occurs. If somebody places a sell order for a price at or below a previously listed buy order, then a “sell” occurs. These trades will set the current price. The latest trade price will be the advertised current price of a bitcoin. This is affected by supply and demand.

Some people think that a single bitcoin will be worth thousands of dollars someday. This has a chain reaction that affects the price. If enough people think they will be worth thousands of dollars someday, then the price will go up. This could feed itself and make them worth thousands of dollars someday. This is not a pyramid scheme because there is great utility in Bitcoin. The value of the network needs to be considered. It is a powerful network of computers that are currently hashing at a rate of 340,000,000 GH/s and growing every month. That is a powerful network and the blockchain might be the most encrypted and secure piece of information that exists. It will have a history of all the transactions that happened on the blockchain. This will be an excellent way to store & exchange wealth.

Bitcoin Price Estimate

If someone was to ask me what the price of a bitcoin will be at the end of 2015, I would say that it could be between $200 and $2000. I don’t think that is a fair question due to the volatility of bitcoin. The price will dip and peak at a moments notice. A more fair question to ask would be what will the average price of bitcoin be for the entire 2015 year. I think that price would be in the range of $200-$400. I can not see the price of a bitcoin falling below what it costs to mine a bitcoin and it won’t stay above what it costs to mine for any significant period of time.

I would approximate that it costs about $150 to mine a bitcoin in an industrial setting. It costs $200+ to mine one from home. Whatever the price to mine a bitcoin, I think it will be a barrier that the price will not fall below. Overtime, the rewards to mine get cut in half, so it becomes more expensive to mine. Once that happens, the price should rise. Also, if demand is greater than the number of bitcoins mined, then the price will rise. If demand is lower than the number of bitcoins mined, the price will fall.

If the price of a bitcoin falls below what it costs to mine, then the money used to mine bitcoins will be redirected to purchasing bitcoins directly from the people that already own bitcoin. This will, in turn, cause more people to stop mining and that, in turn, will make it more profitable to mine bitcoin. This cycle will ensure that the price of a bitcoin does not fall below the threshold for any significant period of time. Most people say the price in the short run is not important at all. It is the widespread adoption that is important for now. Once widespread adoption occurs, then the price of bitcoins will have no other choice but to go up. It is the physics of the Bitcoin system – it is the laws of the Bitcoin network!

Here are four groups of people that could make the price of bitcoins skyrocket:

  1. There will be over 14 million that want 1 bitcoins for their investment portfolio
  2. There will be over 1 million that want 14 bitcoins for their investment portfolio
  3. There will be a few very rich people that will want much more than 14 bitcoins
  4. Then, there will be the rest of the people that will want bitcoins for spending.

Bitcoin Price Volatility

There are very few bitcoins relative the number of people that there are. People are psychological creatures and owning 1 bitcoin will be a milestone. If there are 14 million such people that will want to own 1 bitcoin, the price of a bitcoin will skyrocket – there are not 14 million bitcoins in existence right now. By the end of 2015, there will be about 14.5 million bitcoin. A large percentage of these bitcoins will be hoarded by investors and other people that got into Bitcoin very early.

Liquidity

Many large companies liquidate their bitcoins immediately after receiving them – that is, they immediately convert them to USD. If this is how Bitcoin will be utilized by many companies, then this may cause the price of a bitcoin to stay at lower prices for a while. People will want to buy bitcoins for its’ benefits of shopping online and off. Then they will spend the bitcoins and it will be sold again. However, there will be hoarders that will buy up the bitcoins and wait for the price to rise. This will work over time and it will work short term if people buy in the crashes and sell in the bubbles. Then again, when a lot of people are buying during a crash, then the price will rise. If a lot of people are selling during a bubble, the price will fall. Again, some equilibrium will be found with this being an important factor in the price equation.