Several days ago Bitcoin achieved ridiculous $3K price and now the Internet is full of stories about a few successful geeky investors who put $100 in Bitcoins five years ago and now are millionaires.
You might be thinking that you also could do that and might be rich by now. However, the common bias that drives sharing of positive outcomes hides many failures. And this is why I think that this story will not spread. But for its lucky readers I hope it will give some hints on how not to invest in cryptocurrencies and why they are not good for occasional investing.
In 2013 Bitcoin reached its maximum of almost $1.000. It caused enormous wave of buzz about cryptocurrencies. A few month before I finished the cryptography course from Stanford on Coursera and was very interested in testing this new technology myself. I'd spend a lot reading about what Bitcoin is and what it isn't, created a few tools to analyse the blockchain. I'd read a bit about trading and investment and thought that I ready to put a few pounds into it.
Buying Bitcoins anonymously and with low risk was a challenge. The banks didn't like Bitcoin. Meeting someone in person and buy Bitcoin for cache was something I considered too risky for this experiment. After looking though the alternatives I'd decided to buy a small amount of Bitcoins from the UK exchange by payment from debit card - method that fully expose my interest in Bitcoin to bank and shows that it is not about money laundering or any illegal activity.
I'd moved 3/4 of bought funds to btc-e.com, one of the largest exchanges and did a few trades from and to different currencies. Worked well. Although the cryptocurrencies are highly volatile, the trading is not easy because exchange commission is quite high. So I ended up converting 1/4 to Litecoins and moved them to my local wallet.
At the end of the experiment I had 1/4 in BTC and 1/4 in LTC in local wallets and 2/4 on exchange. Wallets was stored in Dropbox. The probability of loosing the money on exchange due to hack or failure was low. The local wallets were in Dropbox and hard disk, password protected. With the thought "All should be fine" I forgot about it.
It was actually a mistake.
Now, when the Bitcoin had reached its historical maximum, I've reviewed my "investment". What I've found so far:
- Selling Bitcoins is as hard as it was in 2013. No clear policy from the banks. It is unclear whether it will affect my credit history or not. In newspapers and blogs I see articles about people being rejected by banks and binding these rejections to Bitcoin-related operations followed by articles about Bitcoin millionaires (if they ever sell their Bitcoins, of course).
- My account on BTC-e.com was suspended because I have not used it for more than a year. Reopening it requires providing proof of identity, residency, depositing and withdrawing funds, and other information that I either do not remember or do not have or consider too risky to disclose to I-do-not-know-to-whom. Bye-bye 2/4 of funds.
- The Litecoin wallet app I've used does not want to open my LTC wallet. It also refuses to download the blockchain - download bar shows 0% and never progress. Bye-bye 1/4 of funds.
- New version of the Bitcoin client that I've used cannot open my BTC wallet. I've managed to open it with older version of the software, but it is now want to download entire blockchain (more than hundred Gb) - probably will complete in a week with a current download speed over the home wifi.
So at least 1/4 of my funds is probably here and Bitcoin is now 4 times greater. The performance of the portfolio is roughly the same as if it where a few banknotes lying in the desk cabinet.
Investing in "cryptocurrencies" is easy but also very easy to do it wrong due to the complicated technology behind it and completely unregulated market. Doing it right requires regular practicing, learning from mistakes and attention comparable with mastering any other skill to a competitive level.
Negative Results: The Dark Matter of Research, http://www.aje.com/en/arc/negative-results-dark-matter-research/ ↩︎
Banks Still Closing Accounts Over Bitcoin Activity, https://www.cryptocoinsnews.com/banks-still-closing-accounts-bitcoin-activity/ ↩︎