Lecture 14: Introduction To Bitcoin Investing

Lecture 14: In this lecture I want to introduce Bitcoin investing...

By now in the course, you should have a working knowledge of Bitcoin.  Hopefully, you have already taken some actions such as researching Bitcoin wallets and exchanges.  And if you are really serious you might have even purchased, signed up or even used some of these services.

But the focus of this course is Bitcoin INVESTING.  So, in this lesson I want to start laying the groundwork for our investment strategy.

In order to get an idea of how I look at investing in Bitcoin, I think it is a good idea to compare Bitcoin to some other popular investment assets.  By looking at similarities between Bitcoin and these other assets, we will be better prepared to approach investing in Bitcoin with the highest probability of success.

Bitcoin and Forex

As you should know by now, I am predominately a currency trader.  So, it should come as no surprise I would look at the similarities of trading Bitcoin and other currencies.

The first thing I want to teach you about currency trading is… you are not just investing in one currency.  When currency trading, you need to look at a currency pair.  You are looking at one currency value compared to another currency value.

For example, the currency pair EURUSD is the Euro and the US Dollar.

  • If you place a BUY trade on the EURUSD currency pair, you are simultaneously BUYING EURO and SELLING US Dollar.
  • If you place a SELL trade on the EURUSD currency pair, you are simultaneously SELLING  EURO and BUYING US Dollar.

The same thing with Bitcoin.  You are not simply buying or selling Bitcoin, as your gain or loss means nothing unless you compare it to another currency.

For example, BTCUSD is the currency pair of Bitcoin vs. US Dollar.

BTCEUR is the currency pair of Bitcoin vs. The EURO.

Keep in mind, Bitcoin can be traded against other Cryptocurrencies as well.  For example, LTCBTC is the currency pair of LiteCoin vs. Bitcoin.  And ETHBTC is the currency pair of Ethereum vs. Bitcoin.

So, what I want you to understand from currency trading is that you are always going to be trading Bitcoin against some other currency.

Bitcoin and Metals

When trading metals like Gold and Silver you are also going to be trading against another currency.

For example...

  • XAUUSD is the pair Gold vs. US Dollar.
  • And XAGUSD is the pair Silver vs. US Dollar.

But what I want to focus on with Metals is the fact they have to be mined.  Remember, Bitcoins are mined through the process of verifying the Bitcoin transactions as blocks onto the Blockchain.

So, just like mining Gold or Silver, the quantity of the asset is still being produced.  Furthermore, there are costs involved with mining.  But basically, the supply of gold, silver and Bitcoin is not fixed.

Now, keep in mind, unlike Gold and Silver, Bitcoin has a set amount that will be created.  Only 21 million Bitcoins will ever be created, which is projected to be completed around the year 2140.  But up until that time, more Bitcoins are coming into existence every day due to the mining process.

Bitcoin and Real Estate

One of the interesting things about real estate like land is there is a fixed amount.  More land is not being created.  This means that in congested areas, like cities or islands, this limited amount of land means the land's value is elevated.

Now remember, at this point more Bitcoin is being created through mining.  But eventually, there will be a fixed amount.  So logic dictates, the closer the amount of Bitcoin comes to 21 million Bitcoins… the more valuable they will become.

If you look at the amount Bitcoin has grown in value since its creation, you might think you have missed the boat on all the great profits.  But in my opinion, that could not be further from the truth.  The potential for Bitcoin to grow in value becomes higher the closer the amount of Bitcoin comes to 21 million Bitcoins.  So eventually, Bitcoin can be compared to land values in crowded cities or islands where land is limited.

Bitcoin and Stocks

In the most basic sense of investing in stocks, you invest in a stock  because you believe in the continued success of the company.  Maybe you believe the company is undervalued and you want to profit from its rise to its potential.  This form of investing is positive in thinking… you will profit when the company profits and the stock price rises.

Now I know, there are short sellers in the stock market that profit when stocks fall.  But this kind of investing is very negative in thinking.  In the currency market, as we discussed earlier, we are simultaneously buying one currency and selling another, which means we can profit when the currency pair rises or falls.  (We can take buy trades or sell trades).  But when you short sell a stock, you are betting on a company to perform poorly or even fail, which can have real world consequences for real people.

As for Bitcoin, I prefer to take a positive view.  I want Bitcoin to succeed, and I want to profit from its success.  Therefore, like my view on stocks, I want to invest in Bitcoin when I feel Bitcoin is undervalued and poised to rise.  Therefore, I prefer taking BUY opportunities for Bitcoin.

However, since Bitcoin is a currency, I am not against taking sell trades if the conditions are right.  So, while I prefer to take buy trades, there are instances where I would take sell trades.

OK, let's recap:

  • Bitcoin is like Currencies because Bitcoin IS a currency and is traded as a pair, for example BTCUSD which is Bitcoin vs. US Dollar.
  • Bitcoin is like Metals because it has to be mined and the full amount of Bitcoin is not in existence yet.
  • Bitcoin is like Real Estate because eventually there will be a fixed amount when the number of Bitcoin hits 21 million Bitcoins in existence.
  • Bitcoin is like stocks because we are predominately looking to profit from the success of Bitcoin by looking for the best BUY opportunities… even though we could take sell trades if the conditions are right.

I do want to take this moment to say why we are bothering with Bitcoin as an investment opportunity when there are so many other investment opportunities out there.  The simple answer is this… there is more profit potential at this time than with any other investment asset.  Basically, it is possible to make more money investing in Bitcoin than anything else… and that is why it should definitely be added to any investment portfolio.

In the next lecture, I want to compare investing in stocks and investing in Bitcoin, so you can see what a huge profit potential the Bitcoin market provides.  This is the #1 reason to get involved in this market.

Go to Lecture 15: Why Invest In Bitcoin?