July 25, 2021
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  • 4:14 pm Is It Too Late to Buy Bitcoin?

The answer to the question I’ve been most consistently asked since 2016

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(update: although this story is now several months old, it remains entirely valid even as the end of 2020. However, I have now updated this article with links to more detailed work on some of the assumptions made.)

I discovered Bitcoin in late 2013 by chance and, like many people, didn’t fully understand it for a long time. It’s probably why I poked it with a stick for so long and didn’t get skin in the game until three years later.

By then Bitcoin was already at hundreds of dollars and it seemed, surely, that I must have been too late to the party. I remember sulking about the fact that was having to pay around ten times more than I would have done had I really made the effort to buy it as I’d wanted to back in the day. But at that time, buying Bitcoin was not easy and I was terrified of being scammed.

Of course, with what we know now, I wasn’t late at all, but it’s all a question of perspective isn’t it? To others from the outside, it seems I got it just right, but I know the real truth: I just finally got round to working out how to do it.

And yet that question comes up, in one form or another, constantly. It’s as inevitable as your hairdresser asking if you’re going on holiday this year when you lower yourself into the chair.

I always answer it WITH a question (not that it affects my ultimate answer) and always the same one:

“What is it you want to buy it for?”

The answers vary and are sometimes quite vague because the people who ask this are usually the ones who are still sitting outside of the cryptocurrency sphere that many of us have now gotten so used to. They’re basically intrigued, interested and want to get involved in some way. Some just want to make money and are brazenly honest about it, and that’s OK too.

I remember being in that position myself only a few short years ago and a simple answer would have been great. The trouble was, however, I couldn’t find one. There seemed to be as many doomsayers as there were evangelists and none of it made sense. I’m not entirely sure it is that different today from an outsider’s point of view. In other words, it’s still a bit of a mess as the industry continues to find its feet.

But, if you asked me now for my opinion and although I’d qualify it as you’ll see below, I’ll always give you the same answer:

No, it is definitely, definitely not too late.

Some, myself included, may even say you’re a little early to the party. Hell, they’re still setting up the tables and getting the paper plates from the store.

If that seems a surprising statement, let me add a few key points to clarify the reasoning.

If you’re buying purely as an investment, ie you’re not interested in spending it or converting to other currencies, then, in my view, your timing is excellent.

Bitcoin may be a dinosaur in terms of technology and age (it’s over eleven years old already!) but it is also the undisputed ‘reserve currency’ of the crypto world. It’s your ‘go-to’ universally accepted and recognized coin that anyone dealing in cryptos is happy to take. As far as cryptos go, it’s a ‘safe’ bet. But this is also where it gets interesting.

I am always loathe to include exact figures on how many people use Bitcoin/are aware of Bitcoin/own Bitcoin etc because surveys are not always reliable and blockchain data, although entirely dependable, needs context to be deciphered correctly. For example, people can have more than one Bitcoin address (like having more than one email address) which can skew the total numbers.

That said, the only area that they all agree on completely is that, although it is steadily and consistently growing, only a tiny percentage of the global population is actually using it as of this moment. (Update: I carried out extensive research in June 2020 analyzing use and growth rates — the results are fascinating and available here)

Today’s price is therefore not a reflection of future demand. In theory anyway.

The fact is that any application of the network effect will drive the price disproportionately high and disproportionately quickly, which is where these crazy price predictions you sometimes read about in the press come from.

It’s not an unreasonable assumption in many ways, especially when you consider the simple mathematics of the matter.

For example, there will never be enough Bitcoin in existence for every person on the planet to have one. There will — categorically and definitively— only ever be 21,000,000 in existence, but in reality, they’ll be somewhere around 15,000,000 that are actually usable since so many have been lost or locked up over the years, especially in the early days when they had no value.

Oh, and by the way, it’ll be another 110 years before they’re all available due to the way the system works.

That means, should any form of adoption happen, most of us will be dealing only in Satoshi, which is one hundred millionths of a Bitcoin represented thus: 0.00000001 BTC. Think of Satoshi in Bitcoin like cents in a dollar.

There’s not even enough Bitcoin for every millionaire on the planet to have one, so they’ll be dealing in Satoshi too. Only the extremely wealthy or the very early adopters who are still holding will have more than one. Once you apply the basic economic theory of supply and demand, the price can only go up.

This is all theory, of course, based on a perfect world with reasonable adoption, say at least 10% of the global population, and a clear regulatory framework, among other factors.

And whilst it’s almost certain now we’ll be using some form of cryptocurrency in the future as the natural next step in our increasingly digital world, we don’t know yet if it will be sovereign (eg Crypto-Dollar), corporate (Libra) (update November 2020, Libra is almost certainly dead, as explained here) or Decentralized (Bitcoin).

Whilst Bitcoin has first-mover advantage, should an entire economy stop dragging its feet and get active in developing its own currency, or, by some miracle, Libra manages to obtain global regulatory authority, then Bitcoin will be on the canvas. At the moment, however, those two things are unlikely.

And, of course, even in the extremely unlikely event that all countries in the world came together to try and regulate Bitcoin out of existence, you would only need one to disagree and it’ll never be possible. Exchanges will simply move there as we have already seen they are willing to do.

If you’re buying to use it, then by any measure you’re not too late.

In fact, to return to my ‘party’ analogy earlier, you’re not only early, but you’re also taking the mick by turning up with your sleeping bag a full 24 hours before it’s even started and demanding breakfast in the morning.

You see, actually spending Bitcoin has always been, until recently, quite tricky.

To give an example, I owned a chain of retail stores during the mid to late 2010s that accepted Bitcoin, and we used Bitpay to do so. It was clunky, slow and expensive back then and anyone who used it did so because of the novelty more than anything else. They certainly didn’t do it for convenience.

Some big companies such as Expedia, Microsoft, AT&T, and Wikipedia accept it in its native form, and others, such as KFC, Burger King, and Subway, have been trialing its use on and off. The numbers actually accepting it ebb and flow like the followers on a Twitter account, mainly because price volatility and network speed have always been the problem. But like all things in the nascent and uncharted crypto world, these problems are being worked on. Hard.

The main solution to slow network speed is the Lightning Network, which, without going into technical detail, is a way of reducing traffic on the actual Bitcoin blockchain by batching transactions together and then putting them through at the same time.

In layman’s terms, if it works, it’ll be a hell of a lot faster than it is now. However, this is some way off yet and some even doubt whether it’ll ever really work as it should. There’s no question, however, that if it is to achieve any sort of global adoption, this problem does need to be addressed.

Recently, companies have been attacking the problem from another angle by making it easier to spend your cryptos using traditional infrastructure. It is now possible to spend most large cryptocurrencies via specialist debit cards powered by Visa. (Update October 2020: This now includes Mastercard and, significantly, PayPal.)

In other words, where you can use a normal debit or credit card, you can now use Bitcoin and other currencies in the exact same way, by tapping, swiping or entering your PIN. In most cases, the retailer doesn’t even know you’re using Bitcoin as it is converted instantly back into fiat at point of sale. Genius.

This is still relatively new, so the full effect has yet to take hold on the rate of adoption, but I suspect, having used the cards myself and been impressed at their ease, it will drive it to some extent.

Price volatility is a problem that directly affects adoption, spending and investing and is often, quite rightly, quoted a reason against its investment or use.

The main issue is that the market is tiny, compared to, well, pretty much anything else. In fact, the entire market capitalization of the whole industry is currently around the quarter of the size of just one company — Amazon. This means even relatively small transactions can trigger large price changes and it can easily be influenced by anyone with a few million dollars in a situation where regulation is sketchy at best.

My personal view is that as the market grows — and I believe it will continue to do so — this will become less of an issue, but this is likely to be a long time off. Even regulation, which is managed by the country and not globally, can’t provide a universal answer. If price volatility scares you, well, walk away now. It’s not going away any time soon.

Finally, we need to mention institutional investment.

Although it’s not well known and still in its infancy, it’s already here and many more companies are lining up to work with the world’s newest asset class. But regulation is unclear and these organizations, quite rightly, must carry out extreme due diligence to ensure they are not exposing themselves to lawsuits and losses. This will all take time.

However, there’s no question that institutional adoption is coming because if there’s one thing you can trust these guys to do it’s to sniff out new opportunities and get the returns as soon as possible. It’s their business. (Update November 2020: This has now happened, this article explains what’s going on)

Equally, my view is that we, the people, have just as much impact on the future price and adoption of Bitcoin as the big institutions do, and perhaps even more so. This is almost certainly the first time this has happened in history and that paradigm shift alone is one that takes quite some time for most people to get their heads around.

We’re not there yet.

So, is it too late to buy Bitcoin? In my opinion, no. It’s as simple as that.

I’m still stockpiling both Bitcoin and a couple of other cryptos on a daily basis, even now. That said, I’m spending a little from time to time simply because I find it enormously satisfying to buy a round at the pub with it.

But that’s my decision — you have to make your own.

After all, I’m just answering your question.

Danny Smith

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