Predicting the price of Bitcoin

I'm an investor, not a speculator. Why is this important?

The famous Warren Buffet was quoted explaining it this way.... "When I buy a stock, I don't care if they close the stock market tomorrow for a couple of years because I'm looking to the business — Coca-Cola, or whatever it may be — to produce returns for me in the future from the business.".

The changing value system

We live in a world of physical and virtual/digital products. It used to be that only physical products (those that you could touch or that a human was providing a service for) represented anything of value. That has changed a lot since the Internet came about. I've been fascinated with this transition because it is a cultural change in how people place value on things.

I found this dynamic in the world of Internet domains and domain brokers. When the Internet first came out, everyone was scurrying around to register domain names. The value of owning a small world + .com on the end of it represented a quick way to make a quick buck. If you had registered "music.com" for example, then you would likely be worth a lot of money. Quickly there was a land grab for domain names, and people (for a short period of time) made a lot of money by selling the domain to the highest bidder. Now that there are more commonly accepted alternatives to .com out there, it is not as critical, but back then it was super critical to have a value domain name. This was an example of the marketplace putting a high value on a digital product.

Another example emerged with the massively multi-player online role playing game (MMORPG) world. In these virtual worlds, players would spend thousands of hours of their time building up the power of their characters so they could take on more and more challenging quests in these virtual worlds. The value of time to build up a character resulted in companies "farming" characters, equipment, weapons, armor, etc. and then selling them for real money. This economy changed the dynamic of the game manufacturers who quickly found out that there was more money to be made in the economy of selling equipment and upgrades than actual subscriptions to play the game. Many went free to play and then made their money inside the virtual game. Again, another example of where the marketplace put a value on the digital product.

So in a world where BOTH physical and digital products now are agreed to have value, why is there so much confusion on what that value is?

The Bitcoin dilemma

Since the invention of crypto-currencies, in particular Bitcoin, we have seen a 10 year long quest for determining the true value of a Bitcoin. We've seen it go from less than $1 to almost $20,000 and swing up and down within those extremes. It seems everywhere you look, you find someone who is willing to tell you what the value of it is and where its price is going.

If you bet on it going up, and bought in low (as I did), you made out very well. But if you did this in reverse, following the trend and fear of missing out (FOMO), then you probably lost your shirt. This is not a world for the faint hearted.

But the thing that is of great interest to me is that when we early adopters got into Bitcoin, it wasn't because we predicted some massive future price. It was because there was utility to the product. Bitcoin had a purpose. And we voted with our fiat money in that purpose.

What was the purpose? There are multiple facets to that, but for me it was simple.... I needed a way to pay my subcontractors who were working on software development projects, but were in countries that I couldn't send them money by PayPal. It seems that many countries in the world don't have reciprocal banking agreements with the USA, and the only way to send money to a person is to wire it to a bank account (very expensive) or use Western Union (also very expensive and slow). When you need to pay your worker or he/she won't keep working for you, then finding a way that isn't a burden is key. Bitcoin solved that problem because it didn't require a middle-man in the transaction. It was instant, peer to peer, and cheap. As long as the receiver could convert the BTC into something they could spend, it worked just great.

Today the price of Bitcoin has dropped to about 25% of its price at the highest (so far). These massive swings have freaked out people and turned an avid Bitcoin maximalist into a wimpy, crying child. Those that got REKT will probably never return to crypto-currencies. Or do it with the bruises of past losses. Those that were very early adopters probably sold at the highs and are laughing all the way to financial independence.

But the issue still remains - Bitcoin serves a really good purpose as a medium of exchange, just as it did in 2011 when I got into it. And today it is even better because now there is infrastructure built that wasn't there before. Today we have a larger number of exchanges to use to buy and sell Bitcoin. We have government agencies well advanced in the world of legislation & taxation, so that it isn't as scary to get into it now. And we have all the side chain technologies like Segregated Witness and Lightning Network coming together to allow BTC transactions to be as voluminous as VISA & Mastercard is. Today, we are far more likely to be able to compete with the existing exchange services out there.

This has helped drive down the price of exchanges to compete. Along with banks developing strategies to either combat crypto-currencies or become crypto-currencies. Today I rarely have to explain Bitcoin to friends & family because they probably learned it from watching the TV news, CNBC or Bloomberg. Maybe some of them even bought & sold some.

So back to Investor vs. speculator

I opened this article with the definition of someone who invests in a business for the long term because they believe in the fundamentals of the business, vs. someone who is simply looking to make money on the ups and down of a marketplace valuation.

To be honest, I find speculators to be disgusting. They are leeches on the creative zeal that is behind the product they are trying to manipulate the price on. They have no allegiance to the product itself, its purpose or its mission. They only want to make a buck on the up and down price. Unfortunately in the world of crypto currency, there are far too many speculators out there because this is complex and hard science, and most speculators accepted that they don't understand the fundamentals of what they are investing in, but they hope for some quick buck gain or short sell that will make them wealthy. This, IMHO, doesn't contribute to an abundance in an economy. Leeches create nothing and contribute little to the eco-system.

Investors tend to be wealthier in the long run because their faith and commitment to an ideology means they have patience for a long term ride. That said, it makes no sense to hold onto something that is going down like a sinking ship. But if you understand the fundamentals of something, then a low price signals a buy opportunity rather than a bounty of pain.

What if you could invest in a technology where there was an existing infrastructure and economy already in place? And that this economy solves the problem of paying for goods & services, whether physical or digital, in the digital realm of the Internet? And what if this technology is a better payment solution for emerging digital products that are ever increasing in our world? And what if this technology didn't have a central bank that controlled it, but it was purely peer to peer and that it could scale to allow everyone in the world to use it quickly and inexpensively? And what if there was little theft out there because an immutable record of every transaction, every currency instance, etc. was created and validated for each transaction?

Holy cow! If someone came to me with that business plan, I'm all in. That is the business plan of Bitcoin. A plan that only investors will understand and embrace. Speculators can (and should) go away quickly. We don't need or want you in the Bitcoin eco-system. You add nothing to this and just leech the ups and downs of price. But since there are so many of them out there, they are controlling the conversation about Bitcoin.

I'm here to tell you that they will run away and go chasing the next shiny light out there. What is left? A damn good product. A product worthy of investors. Those that will enjoy the long term rewards of buying it at a low price.

What about other crypto-currencies like Steem?

I get asked this a lot. Apply the investor filter to it, and you can answer this for yourself. Does this product have a purpose and a future? Is it redundant? Is it delivering something that will be popular 5 or 10 years from now? Is it a fad or a real thing that will have real efficacy? Does it serve people well and is it something that can withstand competition?

If you are asking these questions, you are looking at things like Warren Buffet does. Like an investor does. If you are just interested in whether the price will go up or down, then you are a speculator and you need to go away. Don't expect me to give you the courtesy of a decent answer if you are coming to me to find out if you should "speculate" on something. If you ask me if you should "invest" in something, then I'm more likely to have a conversation with you about it, but if you don't understand the difference between investing and speculation, and you are not willing to do your own research, then I have no time for you. Sorry.

We live in a fast changing world. A world where the rules of the future are being created each day. Where vision to do things that were never thought of or done before are now routine. Where planning a trip to another planet might be within the reach of the average Joe. Who would have every expected that? Where cars drive themselves. Where machines augment our lives everywhere. We are robot assisted today and most of the time we don't even realize it. In this world, the rules are being re-written all the time. The value we place on things change with the dynamics of change and the prediction of the future becomes far more difficult. Wall Street now sees more of a net effect when a stock like Apple or Facebook or Amazon have either an up or down movement, rather than the traditional old blue chip stocks like GE, Ford, Caterpillar, Heinz, etc. have. This tells you that the future is about prediction of where life and culture will be.

For me, there are no better indicators of the value of Bitcoin than a faith based investment in where the future is going. When the existing banking cartels are out there smearing the speculation price of BTC as some signal that Bitcoin is dead, I really have as much time for them as I do for any speculator who is leeching the good work of the digital economy.