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To Bitcoin or not to Bitcoin

Bitcoin price

For a couple of weeks I have been looking at Bitcoins. First more out of curiosity, but over the last couple of days more from an investment point of view. It’s fascinating that someone managed to come up with the idea for this new currency and that he (or she? Nobody knows who was behind the original Bitcoin idea) made it into a globally accepted means of payment.

Globally is relative of course, but in most countries of the world there are at least some merchants accepting bitcoins. Not a lot though: today there are just 12 companies accepting bitcoins in Vancouver for example. But I believe this will change, and therefore I see a huge opportunity.  Because hardly anybody uses bitcoins the demand is relatively low compared to supply. The supply side will certainly go up a lot over the next years (more people will buy or build bitcoin miners), but because it will get harder to mine every day (that’s part of how bitcoins work) I expect that demand will go up a lot more.

As an economist I see a big opportunity here: if supply is constrained and demand will go up it means that bitcoins may easily be worth 10, 100 or even 1000 times as much as their current value. Don’t underestimate what can happen it bitcoins would really become a global currency: in 2010 someone bought a pizza for 10,000 bitcoins, just 3 years later those bitcoins are worth USD 1 million. I hope the pizza maker kept them in his bitcoin account!

Of course there are a lot of risks. Maybe the theory behind bitcoins has a critical flaw that nobody thought about. Possible, but more and more unlikely as time goes by. A bigger risk, however, is that governments will ban bitcoins. This is something that is actually quite likely in the US or the EU, although a global ban will be impossible because bitcoins are anonymous. But if it happens my theory about demand outstripping supply might not work, because the general public won’t use them.

The currency seems to be a lot more stable than just a few weeks ago, so this looks like a good time to take a position. Either I’ll lose my complete investment or I’ll make a mega-return. No risk no fun, just like in my daily life as a venture capitalist!

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  1. If 10.000 bitcoins could buy you one pizza of let’s say US$ 10 three years ago, then it sounds too good to be true that those 10.000 bitcoins raised in value 100.000 times. It does not seem realistic to me.

  2. Three years ago there was no market for Bitcoins yet, so people had to set their own price. At that point Bitcoins were more a theoretical currency that you could mine yourself and people did not think it would become so big. At the same time it was much easier to mine new Bitcoins, so getting 10,000 Bitcoins was not so hard. Nowadays it’s impossible to mine so many coins yourself. I know it does not sound realistic, but if you look at how the market changed over the past couple of months I think it may be.

  3. Hi Marc, can you detail your method of investment? I am interested in doing the same. The web is somewhat scary place when it comes to something like this…

  4. Wow, a 2 year old podcast about bitcoins, at that point I did not even know what they were 🙂 Thanks Joop.

    Timen, it’s fairly simple, I just buy bitcoins on an online exchange and keep them in a virtual wallet. I’ll probably try out a few storage methods to figure out what works best. I may do a few transactions just to better understand the mechanism. Nothing special, just speculation that the currency will go up when more people start using it.

  5. Interesting. Wonder where it will go. You might want to attend following meeting of like-minded Dutch people 😉

    We have a meeting this sunday 7th of july from one o’clock at Stadscafe de Waag (streetmap and on Wikipedia) behind the City hall of Delft westside of the Markt for users of Bitcoin (Wikipedia) and Litecoin (Wikipedia), interested people and a like.

  6. Saw the news indeed Romeo, but I think it’s more because they have no clue about what BTC is (“The existing laws do not accommodate Bitcoin). I would not be surprised if they eventually will allow BTC. Just hope it won’t be a precedent for other governments that do not fully understand BTC.