So, I bought a bitcoin. When I saw that Congress was discussing digital currencies and new bitcoin price records were getting daily mentions on CNBC and other mainstream outlets, I decided it was time to take a ride (purely speculation, not an “investment”). It’s not a simple process, especially in America, so I’ll walk you through the steps I took to actually evaluate options and finally, to buy a bitcoin.
Initial Bitcoin Criticism
Earlier this year, I wrote an article (Bitcoin is the Dumbest Investment Ever) lambasting the digital currency and its minions (which I still stand by) but being the hypocrite that I am, I could see the room for further bubble expansion and figured, “why not jump on this wave and make a few bucks during this euphoric rise”. While I believe markets are efficient when it comes to stocks, bonds, currencies and commodities and reflect all known information at the time, in the case of bitcoin, and a few other instances like the ONLY stock I’ve bought in over a year (now up big ), when I start to see the mainstream media reporting on something, google search volume through the roof (chart below) and lastly, when your mom asks about it – it may be signaling mainstream acceptance and further expansion of a major bubble. The trick will be when to actually sell. But here’s the scoop on my experience.
Google Search Trends for Bitcoin (click to enlarge):
It’s been amusing to watch various brands and stores try to jump on the bitcoin bandwagon by showing how hip they are in accepting bitcoins as payment. Richard Branson has jumped on board, as well as various local stores. It’s kinda funny to see a coffeeshop offering to accept bitcoins though then the last quote was close to $1200. That’s a LOT of coffee! I think they’re just trying to look trendy but don’t have any takers.
How I Bought a Bitcoin in America
During my initial research, what I found were a few informational sites that basically pointed to dozens of different exchanges and ways to buy bitcoins. The two main ways I boiled it down to were to buy a bitcoin and host it in your own “wallet” which seemed a bit more complex vs. just buying it at an exchange/holding company, which would be akin to having your cash with a bank instead of under your mattress (except without any of the FDIC protections a bank offers and no regulatory oversight). Since I didn’t want to have to bother with encryption keys, housing bitcoin details on my own hardware, etc., I researched some of the more prominent exchanges, figuring I had to put some form of trust in the most prominent ones or not bother at all. The most popular I found seemed to be Mt. Gox. The prices there are a bit higher than the average exchange for some reason, but it seemed more Euro-friendly than other options. For instance, I wanted to get money into a Mt. Gox account from my bank or credit card and I couldn’t do so – they don’t even work with paypal. There were goofy workarounds in forums like first transferring money to Dwolla first, then transferring it to Mt. Gox, but I was a little frustrated that the site itself didn’t have straight advice on how to get an account funded to purchase bitcoins through them.
Next, I found a San Fran startup Coinbase which seemed to be relatively legit (in comparison to some of the other exchanges). I found it relatively easy to set up an account and buy my first bitcoin which I was able to lock in the same day (a rarity compared to other exchanges). There was some sort of weird 4 day wait period where they were waiting for the money to clear from my bank until they would show the bitcoin in my account. But I did lock in that price from day 1, it wasn’t like I needed to wait 4 days to fund and then purchase at a much higher rate. It’s not a perfect solution. For one, just like some other exchanges that have gone belly-up in other countries, you could either have the founders make off with the funds or hackers could outright steal the bitcoin holdings (each of these have happened in other smaller exchanges overseas), so, if you were going to buy more than 1, I would suggest setting up accounts with multiple companies (or if you’re so inclined, just hold them yourself in your own bitcoin wallet, hardware or whatever). Another criticism I have with Coinbase is that they link to an App, but it’s not in the Apple App store which is a wierd disconnect. Next, the mobile web interface is definitely lacking. For a savvy startup run by a bunch of web stars, you’d think they could get their mobile web site to look a little more user friendly on an iPhone (you have to scroll completely up and down the screen and the menus are messed up). None of these aesthetic complaints outweigh the ease and security that coinbase offers over other options, but I wanted to provide a balanced review of my experience.
My Return on Bitcoin Purchase Thus Far
After watching bitcoin continue to break daily records and get enough attention that it seemed like a trend, I went with coinbase and had a buy price of around $700 and bitcoin hit $1200 in last night’s trading, so that’s a 70% gain in a bit over a week. I don’t expect that to continue of course, and there have been numerous one-day drops of 30% or more, but it is fun to watch nonetheless! My biggest problem? When to sell! See, if I got in when they were hovering in the $300 range I was going to buy 2 and then sell one off as soon as it doubled so I could move forward knowing I at least broke even no matter what happened to the remaining one. But at $700, there was no way I was buying 2. Dropping $1400 on a “digital currency” with all the shortcomings I’d pointed out previously just wasn’t doable for me (and my wife I’m sure!). So, I initially set some arbitrary targets like $2000 or whatever as a selling point, but then there’s the regret I’d have to contend with if it goes to $20,000 in 2 years. So who knows, for now, I consider it an experiment. Something fun to watch and write about. But totally contrary to my conventional investment approach for “real” investments, I have no plan that I can speak of. It’s wait and see and hope bitcoins don’t tank completely.
Soon, I’ll be writing about some of the other digital currencies that are starting to compete with bitcoin (which I predicted) and have lower prices. I’ve started a new category for Bitcoin Articles, so make sure to subscribe to my free emails newsletter to keep up with my adventures and new findings.
I’d Love to Hear Your Bitcoin Stories
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