So now here’s something that I often get asked by my friends and family. “Is Bitcoin a good investment?”
It’s hard to give a definitive answer. It’s more like a “yes and no” in my mind. It kind of depends what you are looking for and how you intend to invest in Bitcoin. Of course, there are many opinions on the matter, so don’t just take my word on it.
What are your intentions with Bitcoin?
If you’re looking to make quick money, you sure can. However, just like gambling, you can lose it all just as quickly. The Bitcoin prices jump up and down quite drastically and quite quickly. Just a few months ago we saw trading at around R65,000 per Bitcoin whereas earlier this month it was over R220,000. And, it’s been everywhere in between. Right now it’s R203,442. (Read this if you’re not really sure what Bitcoin is)
So if you invested R100k when the Bitcoin price was R65,000 and then sold when it was R220,000; you would have ended up with R338k. Now that is amazing! But imagine if the opposite happened to you.
There is absolutely no knowing what it will do and although you probably can make good money by trading Bitcoin (more on this later), it’s a gamble. Investing in Bitcoin with a long-term vision is slightly less of a gamble, but still risky.
My take on it is to invest around 1% of my overall investments in the DCX10 crypto index, and I then have R1,000 that I trade with and essentially “play” with. I can afford to lose it all, but perhaps I end up making something.
I don’t view this money as an “investment”, but rather as a “wildcard”.
Investing in a cryptocurrency index
I am not promoting the DCX10 crypto index, merely mentioning it as an option and something which I invest in. This index tracks 10 cryptocurrencies and gives Bitcoin and Etherium the largest weighting in the index. I invest in this via EasyEquities as I would any other ETF. And my goal is simply to leave it for many, many years.
I invest around 1% of my overall portfolio in this. It’s high-risk but at the same time it’s proving to be a valid and sought-after investment. We don’t really know where this technology will lead to but it’s probably here to stay and we should probably start to feel comfortable with cryptocurrency.
Investing a small portion of my portfolio in this means that I won’t lose too much if it all goes belly-up. However, if it turns out to have been a great decision then I will benefit from it (although obviously in proportion to my investment).
You can read about when I first decided to introduce this to my portfolio. So it’s impossible to say whether Bitcoin is a good long-term investment, but it’s probably not a bad idea to have a small percentage of your portfolio allocated to this.
Trading Bitcoin
As mentioned in the introduction, I have R1,000 that I use to trade with on Luno. Download the app and check it out. This is separate to my EasyEquities crypto index investment. I know it’s not much but it’s enough for me to play with and to feel excited about the wins and tense about the downward trends. We all like the feeling of beating the system and making it big time. So I get do all the things that “real traders” do, but with minimal risk. In fact, I know people who spend more that R1,000 on a night out so this is really no risk to me if I lose it.
Being an admin-freak I have obviously tracked all my trades so that I can evaluate what I have done.
My trading “theory”
I know that I can’t beat the system and that I am not really that clever. Hence I have created a little system that I use and which I generally stick to. Being human I do obviously let my emotions get in the way on occasion, but as I’m dealing with such a little money, it doesn’t matter.
I simply “buy low and sell high”.
So, whatever the current price is, I place a bid to buy a fraction of a Bitcoin (usually R150 – R250) at a slightly lower price than the current price (around -0.5%). And then once bought, I immediately place a bid to sell the exact same fraction at a higher price (5% or more).
Looking at the highlighted row, I bought 0.0028 Bitcoin for R238 on 16 March and then sold the very same 0.0028 on 20 March for R336. Thus making 41% profit, or R98.
This was a very lucky trade as I often have to wait a few weeks for the price to increase sufficiently. As you will see though, I never sell for less than I bought for. Even if this means sitting on it for a few weeks or months.
Since November 2019 I have made just on R300 profit by doing this. Looking at this in another way, my investment of R1,000 has grown to R1,300 in 10 months. Thats an average of 36% per annum. Not bad I’d say! So if you ask me now if Bitcoin is a good investment I’d say yes, but it’s risky.
I’m not promoting this and am not going in to details of apps or wallets or any of those things. You can do your own research. LOL. I will just say that I use Luno and am very happy with them. And I use the “bid” function which allows me to buy and sell with no fees. It’s just not instant. You can sign up here and see how it works without committing to anything.
If I get enough interest on this I may expand on the details of exactly what I am doing. Let me know on Twitter or in the comments below.
So is Bitcoin a good investment?
It can be, but it isn’t necessarily. If you are investing for the long-term and invest a little each month and thus buy at an “average price”, it may be a good investment. You won’t really know until 20 years form now. If you’re wanting to trade and make “quick bucks”, you might be able to. But again, there is absolutely no guarantee.
I am happy to invest a few thousand rand in Bitcoin, but I am most certainly not putting any substantial amount in. I am too risk-adverse for that and I’d rather retire comfortably with my lower risk investments that lose it all on a hunch.
What do you think about investing in Bitcoin?
Check out this guide to investing in cryptocurrencies in South Africa.