Monthly Archives: November 2013

Predominant Perspectives on Bitcoin Investing

Bitcoin Investing

Bitcoin InvestingBitcoin, the humble little digital currency quietly introduced to the world in 2009, has proven to be the best performing asset on the planet over the past four years. (It seems as though the folks at Business Insider need to do a bit more due diligence before they post stories about the “best performing” investment)

Until recently, Bitcoin – and its investment performance – have been easily ignored by traditional investment media. Meanwhile, Bitcoin has continued to grow and blossom.

Mainstream financial press is silent no more.

Bitcoin has experienced raids, scandals, bad press, and a multitude of insults that would have killed it if it was just some passing fad.

Bitcoin has proven to be decidedly more than just a passing fad.

It is because of Bitcoin’s resiliency and tremendous demand growth that has caused the mainstream financial press to start covering it.

Somewhat surprisingly, the coverage hasn’t been entirely one-sided.

The following video was created and published by the New York Times and covers the story of “the online currency that has attracted a number of investors“:

 

 

For a more detailed examination of the factors to consider before you embark on Bitcoin investing, here is an excellent video from the Bitcoin 2013 conference sponsored by Bitcoin Foundation in San Jose, CA:

 

 

Lastly, here is an amazing story of a man who, while researching encryption for a thesis paper, discovered Bitcoin and allocated a mere $27 to invest in some Bitcoins. His tiny investment has grown to over $1 million worth of Bitcoin today (our guess is that you would never convince him that it’s a bad idea to buy and hold Bitcoins for investment):

 

 

Bitcoin Arbitrage Is No Easy Task

Bitcoin Arbitrage

Bitcoin ArbitrageWith Bitcoin being the leader of digital currencies, growing rapidly, experiencing raids and scandals, and benefiting from an large influx of investor money, the volatility is certainly present that typically offers a great profit potential for arbitrage, which is described by Wikipedia as, “the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.”

In theory, the opportunity for Bitcoin arbitrage seems extremely lucrative. The Bitcoin market is still in its infancy. Bitcoin is very, very, very far from being a mature market. As such, the Bitcoin exchange rate will vary widely from exchange to exchange.

For instance, at the time of this writing, here are the current price quotes for one Bitcoin from three different Bitcoin exchanges:

MtGox:  $266.90

Coinbase: $283.11

BTC-e: $256.49

These types of price variations are a traders dream come true and do not exist in more mature markets. However, Bitcoin being the Wild West type of market that it is, the price variations between exchanges is excessively large.

The opportunity for arbitrage seems too good to be true. One could simply buy 10 Bitcoins on BTC-e for a total of $2,564.90 and then immediately sell them at Coinbase for $2,831.10, for an instant arbitrage  profit of $266.20. Simply do this 4 times per day for a cool grand. Or better yet, what if you used a Bitcoin trading robot to do this many times per hour?

The profit potential would be in the tens of thousands of dollars per day…

So why aren’t savvy traders making millions via Bitcoin arbitrage?

The answer lies in the fact that the exchanges themselves are still very immature. On Wall Street stock exchanges, trades happen in millionths of a second. On Bitcoin exchanges, trades happen in days.

Getting back to the example above of buying 10 Bitcoins at BTC-e and selling them on Coinbase, while that can be done, you will not receive your proceeeds from the sale at Coinbase for several days.

And therein lies the hurdle to successful Bitcoin arbitrage. By the time your funds are received, the Bitcoin price could – and probably will – have moved significantly away from where it was when you initiated the trade.

While some people may see the reward as being worth the risk, with the price of Bitcoin rising so rapidly, magnificent profits can be had by simply buying some Bitcoin and riding the rapid climb in value.

The Price History of Bitcoin

Bitcoin Historical Prices

If you’re aware of the digital currency called Bitcoin, you’re probably also aware that it’s price has been steadily climbing over the past several months as it gains more widespread acceptance from the mainstream financial community.

What you may not be aware of is the remarkable price history that Bitcoin has racked up over the past few years since its launch in 2009.

Official exchange pricing of Bitcoin, depending upon which Bitcoin exchange you’re using, generally began in July of 2010. Bitcoin was first introduced into the world as a functioning digital currency in January of 2009, however, there were no Bitcoin exchanges at the time to convert Bitcoins into any of the government-issued currencies of the world. Any such transactions were done on a person-to-person, individual level. Records of such transactions are sparse.

So, with the records being what they are, we can still estimate the Bitcoin exchange rate for time frames prior to July of 2010.

Which brings us to the historical price of Bitcoin. Here is the Bitcoin price in U.S. Dollars on January 1 of each of the past 4 years (we’ve provided an estimate for the Bitcoin price on 1/1/2010 as there were no official exchange prices dating back that far):

January 1, 2010:  $0.01 (estimate)
January 1, 2011:  $0.29
January 1, 2012:  $4.70
January 1, 2013:  $13.55

Looking at the trend over these past few years of the historical increases in Bitcoin’s value, let’s average out the yearly gains and extrapolate a few years into the future using the already established price history of Bitcoin.

From 1/1/10 to 1/1/11 Bitcoin went up about 29 times in price. From 1/1/11 to 1/1/12 Bitcoin went up about 16 times in price. From 1/1/12 to 1/1/13 Bitcoin went up about 3 times in price.

The average of these three is 16. Using this information, we can project out a few years. Of course, as the old saying goes, past performance is no guarantee of future results. There is no guarantee that Bitcoin’s price will continue to rise at the same phenomenal rate that it has over the previous three years.

With that preface, here’s the projection for the next few years based upon an average yearly price increase of sixteen fold:

January 1, 2014:  $216.80
January 1, 2015:  $3,468.80
January 1, 2016:  $55,500.80
January 1, 2017:  $880,012.80

Bottom line: if Bitcoin’s price for the next 3 years continues to increase at roughly the same rate as the last 3 years, the price of each Bitcoin will be just over $880,000.00.

Those numbers might seem impossible, but consider the story of Kristoffer Koch.

You might want to buy a few Bitcoins at today’s prices, just in case history repeats itself.

 

 

Bitcoin Gambling Sites Gaining Popularity

As Bitcoin Gains Popularity, So Are BTC Gambling Sites

Bitcoin Gambling SitesAs Bitcoin continues to garner greater and greater acceptance, Bitcoin gambling sites are growing in popularity right along with it.

Whether it be sports betting, video poker, blackjack, roulette, craps, keno or slots, if it can be gambled upon in the real world, odds are high that it can be gambled upon online using the virtual digital currency.

For those who are fond of wagers and risk, here is a list of the top websites that provide gambling using Bitcoin (remember, we do not endorse nor make any claims to the legality of the conduct at the sites below. Readers must perform due diligence at any site they visit):

Satoshibet.com “Welcome to SatoshiBet, the home of modern casino gaming. All of our games can be played for free, instantly in your browser and without any downloads necessary!

We are one of the most trusted online bitcoin casinos. All payments happen instantly and completely anonymous through Bitcoin. We developed a highly innovative feature called Provably Fair to guarantee you that every game you play is shuffled in a completely fair way and that we can proof this.”

Gambit.com “Play games, win Bitcoins!”

BitcoinLiveBets.com “Fast and anonymous registration. Fast deposits and withdrawals with a very low minimum! We offer excellent odds for all major sports. Win a digital pile of Bitcoins, fast and easy!”

Betcoinsports.com “A Bitcoin Casino is an online destination where you can use your Bitcoins to play in a Sportsbook or a full Casino. BetcoinSports.com features a full Sportsbook and Casino.”

BitcoinVideoCasino.com “Bitcoin Video Casino is an online casino that exclusively uses the cryptocurrency Bitcoin. We are provably fair, offer anonymous and instant registration, and offer several popular games. Our game style is based off of the classic Video Poker machines in Las Vegas.

We offer the following advantages:

  • No registration
  • At least 99.5% expected return on all games
  • Instant payouts
  • Games are provably fair
  • Play Bitcoin Video Poker from anywhere”