It’s time to buy bitcoin

Today we’re talking bitcoin, folks.

The bull market is back on, in my opinion.

Here’s why – and what you need to do…

It’s time to buy back into bitcoin

I wrote an entire book about bitcoin in 2014. I was very excited about the possibilities raised by the technology.

Yet I’ve always been rather cautious – bearish even – about bitcoin from an investment point of view. I’ve recommended that you educate yourself about the tech, rather than put significant amounts of capital to work.

I think I was right with the call. When I was writing the book, bitcoin was trading above $500, and it was in a bear market, one in which it remained until late last year. The price ended up falling below $200 a coin.

My outlook, however, has changed. It’s in a bull market now. And I think you should buy in.

There were all sorts of factors that informed my caution, but chief among them was a cycle which research company Gartner has dubbed “the hype cycle”. All new technology seems to go through it.

A simple way to explain it is to look at the rise of the internet and the dotcom boom-bust.

There are so many adjectives we could use to describe the advances we’ve seen since the year 2000. Amazing, breathtaking, mind-blowing – take your pick.

In 2000, only about 350 million people were online. Now it’s more like 3.5 billion. Computers were slow, the internet was slow, Google was only a couple of years old. Facebook didn’t exist, nor did 4G, cloud computing or Gmail. Smartphones? Are you kidding me? Some of us still hadn’t got our first Nokia brick.

Those are some massive changes. And yet the Nasdaq – the US tech stock index – is still trading below its 2000 highs.

How is such a thing even possible? Gartner’s hype cycle explains.

There are five phases. First we have the “technology trigger”. Somebody’s come up with some new tech that piques interest among the few. Some seed money and start-up capital comes in to aid research and development, and we get some first-generation products. Think dotcom in the 1990s.

As the media becomes interested, we move into phase two, “the peak of inflated expectations”. More and more people get excited. This tech is amazing/breathtaking/mind-blowing. It could change the way we operate. Speculative and mainstream money comes in. Share prices start going bananas. Think dotcom in 2000.

That leads to phase three – “the trough of disillusionment”. Prices start to fall, and there’s some negative press as the first-generation products don’t quite match expectation. The realisation dawns that less than 5% of the potential audience has fully adopted. Funding becomes more cautious, and some businesses go under. The thing snowballs into a crash as the speculators rush to get their money out.

Then, with bearish sentiment proliferating, we head into phase four – “the slope of enlightenment”. This is the long, hard slog towards mainstream adoption. A lot of the necessary infrastructure has been built thanks to the preceding boom, so that need is covered. Meanwhile, second and third-generation products are launched. Some of them are not so bad. Belts have been tightened and business practices improved. More and more users are slowly coming on board.

Finally, that takes us into phase five – the “plateau of productivity”. That’s where dotcom is now. Companies such as Amazon, Apple and Google are making big money. Half the world’s population – or thereabouts – has at least some internet access. And the internet is doing all those things that people said it would back in 2000. In fact, it’s probably doing even more than that.

Here’s Gartner’s idealised chart.

Cahrt of the "hype cycle"

Source: Gartner

And here’s the Nasdaq from the mid-1990s until 2008.

Nasdaq composite chart

Source: StockCharts.com

You can see that one is a virtual mirror of the other.

Bitcoin is no different – though on a considerably smaller scale than the Nasdaq.

Bitcoin and the hype cycle

In early 2009, Satoshi Nakamoto implemented the tech behind bitcoin, and by 2010-11 a few early adopters had jumped on board. This was the “technology trigger” stage.

Gradually, more and more adopters were coming on board, and the technology was evolving. But the story behind it was great. The idea of new, open-source money touched a collective nerve following the global financial crisis. Who was this anonymous genius, Satoshi Nakamoto? And the price – this is a speculator’s dream.

By 2013, we were heading towards “the peak of inflated expectations”. In the spring the price spiked with panic over bail-ins in Cyprus. Suddenly bitcoin was all over the news.

Everybody was interested. Even Newsnight was all over it. It had engendered a near-religious fervour among its users. Bitcoin was going to change the world, overthrow governments, end the tyranny of central banking, stop wars, and usher in a new age of freedom and peace. It was even going to eradicate Third World poverty.

By the autumn, early adopters had become multi-millionaires. Satoshi Nakamoto was a billionaire. A single bitcoin cost the same as an ounce of gold.

And thus we moved into the next phase – “the trough of disillusionment”. And what a trough that was.

For all the potential of the tech, fewer than five million people worldwide had a wallet. There were scams and bankruptcies. The only real world use for the money seemed to be in buying and selling drugs. The price fell by 85%.

Here’s the chart:

Bitcoin price chart

Source: bitcoincharts.com

Does it look familiar?

It’s that hype cycle again.

It’s my view that we’re no longer in phase three. We’ve now moved into phase four – “the slope of enlightenment”. The bitcoin community has knuckled down. Investment is cautious – and rather more wise.

The crooks, the incompetent and the unlucky have been flushed out. The community is purged. The infrastructure is in place – or much of it, at least. The tech has evolved. It’s now on the path to mainstream adoption.

Bottom line: it’s a bull market, folks.

If you aren’t already positioned, you want to be. If you haven’t already bought some bitcoins, I’ve outlined the process again below (I’ve written about this before here). If you’re already on board – well, hang on.

How to get started with bitcoin

First things first. Do not speculate until you are familiar with the processes. Your first step should be to educate yourself.

There are three ways to get bitcoins. You can earn them (by offering your services in exchange for bitcoins); buy them; or mine them.

Forget mining them – these days it takes industrial quantities of power to do this.

Let’s instead look at how to buy them.

  1. The first thing you need to do is get a wallet. Your wallet is a bit like your email address – it’s where you keep your bitcoins. Go to coinbase.com, or blockchain.info, type in your email address and a password, and you’ll have a wallet. You’ll then be given a wallet address. Make a note of it.
  2. Go to bittylicious.com. Paste your wallet address where it says “bitcoin address”, then deposit some money – say £20 – either via credit card or bank transfer. Get a friend to do the same.
  3. Once you and your friend are set up, practise sending each other small amounts of money.
  4. Go to a trendy café in Shoreditch or somewhere that accepts bitcoins, and buy yourself a cup of coffee and a croissant as your reward. Congratulations. You’re part of the financial revolution.

Another buying option is available through localbitcoins.com. You can even buy them in cash this way. In some cases, the vendor might come to you and probably even help you to get set up. Many bitcoiners are happy to help the uninitiated where they can.

As for earning bitcoins, once you’ve followed step one above and got a wallet, simply give that address to anyone who plans to pay you in bitcoins for your product or service, and they can pay you as easily as they can send you an email.

  • Bitcoin halving is coming up in July, so that means mining of new Bitcoins will be cut in half. (more rare) Lightning Network I hear should be this summer, that is a technical improvement that should make Bitcoin extremely fast and competitive. They also appear to be solving the scaling problem, which means Bitcoin could be able to compete with legacy payments systems in the end. All happening this year it seems, so yes, a new hype cycle is coming soon. By next month I expect we should see some dramatic gains as halving will be so close, anything is possible of course, but that is my bet.

    • And with GBTC trading at over $700/coin already, its safe to say any investment in the $400’s is a good entry.

  • Regina McGee

    I’ve been buying in once a week for the last 2 months – you can imagine I’m feeling quite good about the current rally 🙂

    • Faggo

      Why did you steal your picture from some woman called Laura who posts on a cooking website? PS your made up name is so unlikely that even Stephen King wouldn’t have come up with that one. Please stop shilling.

  • Andre

    Regarding your wallet advice, coinbase.com or blockchain.info, really? First of all, these are webwallets which require you to trust the companies involved. The great thing about Bitcoin is that it is NOT necessary to trust your funds to a third party! Instead, if you’re starting out with a small amount, manage your wallet yourself on a smartphone, install Mycelium (on Android) or Breadwallet (on iOS). As long as you write down the 12 seed words (both apps will advise you to upon first use) and store them properly on paper (NOT on a computer), you’re safe.

    Furthermore, if it comes to buying a small first amount of bitcoin, I’d like to mention paxful.com as well. It’s similar to localbitcoins.com, only a bit more user friendly IMHO.

    • Zyo

      Blockchain.info offer a wallet that is encrypted and only yourself can sign it.
      Storing it on your computer is great but you can also fall victime if your computer is infested with virus… the ultimate protection is a hardware device like trezor.

    • Coinbit

      I highly recommend the encrypted paper wallet as there is no reason to play games with leaving important info online just scan it when you need to use it.
      https://bitcoinpaperwallet.com/bip38-password-encrypted-wallets/

      • Robert-Reinder Nederhoed

        Please do not advise paper wallets to people new to Bitcoin. Paper wallets are a hassle which will likely scare new users away.

        For larger investments in Bitcoin, advise to pay 50 to 99 euro for a hardware wallet like Trezor or Ledger. These are just as safe and far more easy to use.

        • Faggo

          Everybody please listen to this guy.

    • Yeah, it’s best to have a wallet like mycelium app or copay app on your phone for smaller amounts. And use a paper cold wallet for larger amounts.

    • Robert-Reinder Nederhoed

      A low barrier of entry is key to welcome new people to Bitcoin. There is nothing wrong with advising web wallets like Coinbase or Bitmymoney.com
      People can always take the next step and send their bitcoins to a mobile wallet or hardware wallet like Trezor.

      The first milestone in getting into Bitcoin is acquiring a small amount. That should be as easy as possible. After that a user can still be advised to not depend on third party services too much and learn to use a mobile or hardware wallet.

      • Andre

        I agree with a low barrier being key. However, I think downloading an app is just as easy (if not easier) than registering at a website.

        • Robert-Reinder Nederhoed

          Downloading an app is simple. But which Bitcoin app should the user choose? And, after downloading, how can I get bitcoins in my app?

          Compare that to using an online payment method and an email address to buying your first bitcoins; a method most users are familiar with.

          • Andre

            On Android, I recommend Mycelium. On iOS, I recommend Breadwallet.

            When you buy bitcoins, you need to provide a Bitcoin address to receive the bitcoins, just like you provide a bank account to someone who needs to send you money. In your (phone) wallet, you can share a receiving address for that purpose. Although a new Bitcoin address is generated for every new transaction for reasons of privacy, old addresses remain usable.

    • Faggo

      This advice is only slightly better than the article’s.

      If we are talking about INVESTOR grade security, a damn phone wallet is not nearly enough.

      It MUST be cold storage and it MUST be done in such a way that the keys generated have not been tampered with. Will MoneyWeek readers really know how to verify the hash of their Electrum/Armory distribution? I doubt it.

      Trezor is the only investment grade solution for the average person. The ONLY solution. Other hardware wallets don’t even have displays to verify the address you’re sending to is correct.

      • Andre

        I agree. Keys to serious amounts of Bitcoin should stored offline (aka cold), either on paper or on dedicated devices like Trezor or Keepkey.

  • There are many respectable places to buy bitcoin besides the ones mentioned. Try circle.com for example as one of the easiest options.

  • Sun Drez

    Good article.

  • polar

    There will still be a lot of ups and downs within the excitement – but if you keep your Bitcoin safe and head down you’ll be really happy you did.

  • Great article Dominic. With all the scaling solutions that’s been in talks for several months and the upcoming halving event, I think this is the best time ever to buy Bitcoin. For anyone who wants to get into Bitcoin or buy Bitcoin, here is some more great info on getting started and buying: https://blog.blockgram.com/how-do-i-buy-bitcoin/

  • If you’re looking to invest in bitcoin make sure to check out https://BittyBot.co/ for a price comparison of all the best bitcoin exchanges and sellers.

  • Peter Pyper

    Cold storage. .simplest. .easiest. .never have to worry about misplacing your password. Let the brokering agency deal with it

  • Faggo

    Preparing myself for a brand new wave of suckers who end up losing their entire investment to web wallets, malware and the like.

    If you’re really honestly interested in doing this purely for investment, you need to fully understand what “cold storage” is. You need to generate your keys offline, that is on a separate air gapped computer that will never touch the internet. You need to make sure the software you downloaded is legitimate (do you know what hash verification is?) and not something a hacker has tampered with that generates compromised keys. Yes this does happen. Many people who are very IT literate have lost a lot of money in Bitcoin because of the “100th window” problem. You might lock 99 windows in a house, but if you leave 1 window unlocked, it’s as good as open to everybody. One error is all it takes.

    Alternatively, I’d recommend purchasing a Trezor device that makes this whole process a lot easier and a hell of a lot more secure. In fact this is the only method I’d recommend to anybody who is not 100% confident in their information security habits.

    Do your research. If all you do is create a wallet on the computer you’re using, or use a web wallet, you are putting yourself at COLOSSAL risk, just look up the “Mt Gox” theft and realise that when you trust some random company with your money, it’s as good as theirs.

    That said, if you’re sensible and use a Trezor, your funds are honestly safer than in a bank or in Fort Knox. No I’m not selling them. I just know this ecosystem inside out and know that this is the best device for Bitcoin due to the fact that you basically cannot screw it up as long as you follow the simple instructions.

  • PontusLindblom

    I agree that it is a great time to buy bitcoins now. Very important to also invest some time to educate yourself about Bitcoin. Here is a great thorough introduction https://startusingbitcoin.com/
    1) What is Bitcoin?
    2) How to store bitcoins
    3) How to buy bitcoins
    4) Benefits for merchants to accept bitcoin

  • poshest

    Stunning timing man! Just before the biggest selloff in a while! 😛

    • Andre

      Hence, a great opportunity to buy. 😀

  • Sheriff the bastard

    Who takes these things? Give me physical gold anytime!

  • When investors start buying, traders start… https://margintradingbitcoin.com/

  • James Muirhead

    The easiest place to buy bitcion and also have the ability to hold your money in several other currencies is Uphold. https://uphold.com/ You can transfer Sterling straight into your Uphold account and transaction fees are minimal. This is the future “email” of money. They have an Andriod and iOS app as well, so before you open an account anywhere I suggest you at least look it up.

  • 1976boy

    Um, if you’re so bullish on BTC at $450 where were you when it was $200 (when the rest of us were buying)?

  • If you’re looking to buy bitcoin in the UK or Europe, check out CoinCorner: https://www.coincorner.com
    Buy BTC for GBP or EUR. All major credit and debit cards accepted.

  • Steven Rachko

    Well I think it might…

    https://postimg.org/image/v8of5vxez/