Why is Bitcoin the craze now?
As many would have noticed or realised, the topic of ‘cryptocurrency’ seemingly creeping into the corners of what would be regular ‘coffee-shop chats’ or even outings which conventionally revolved around football teams, bad bosses or old friends.
The topic about how ‘I know that guy who bought Bitcoin 2 years ago whom proclaims that he is getting richer by the minute from seemingly playing or investing in “digital money”. The same topic which appears to hit the news or your social media feeds almost every other day.
What is the difference Bitcoin and Money?
In what we call the age of Technological Disruption, Bitcoin is revolutionising the use of money and is gaining traction really quickly, with early adopters now enjoying the fruits of their beliefs and new-comers hoping to ride on the wave for a quick buck. One thing for real, the introduction of the Blockchain Technology allows for sophisticated platforms and business models to be built upon, streamlining processes and breaking boundaries which enables businesses to ‘work outside the box’. Simply put, the effects of Bitcoin affects these three categories differently:
Businesses whom now transact in Bitcoin can now receive payment removing fees, fear and third party rules from transactions (think bulky NETS and Credit Card Terminals gone, Credit Card Fees, Holding Banks, Transaction Fees). All it takes is for merchants to receive Bitcoins from the Customer.
Bitcoin and other forms of Cryptocurrencies are powered by Blockchain, which is a form of Distributed Ledger Technology. Simply put, data or transactions are now jointly managed by participating computers around the world instead of a single Computer, Server, Company or Government. In Bitcoin, it is managed by its network and no one central authority of government. You cannot simply hack one computer and disseminate your altered ledger as all other computers will flag and reject your participation. This allows the system to gain trust and also because of such, some governments are banning the use of cryptocurrency citing tax evasions however they would more likely than not only slow the economic progress of their state as transactions are made pseudonymous and online.
With Bitcoin, sending money across the globe is as easy as sending money to your neighbour, without the worry of bank fees, exchange rates, minimum account balances, holding accounts, working days for the transaction to be approved and money to be remitted.
Is Bitcoin in a bubble?
Bitcoin’s highest price was $0.39 in 2010, and experienced phenomenal growth from 2016 to 2017 with a price jump of $784 to $17,650 per coin. That is a staggering +2150% increase which no sane asset class would have reached in the same amount of years. This has drawn widespread financial furore, dividing the financial community into the ‘Bubbles’ and the ‘Boom’ zone respectively.
Bubbles ‘ Bane’
Cryptocurrency exchanges utilises homegrown technology and are coming under strain with almost $16bn worth of transactions taking place every day. Just last week, popular exchange operators, Coinbase and Bitfinex reported problems as traders rushed into cashing in on the latest surge in Bitcoin. Some conventional traders were quick to point out that traditional stock exchanges like the NYSE, NASDAQ, etc were equipped with state-of-the-art trading systems which can support huge volumes of transactions per second as millions of dollars were traded by the milliseconds and that hardware or failure on cryptoexchanges which happens almost too frequently now is unreliable and can cost billions of dollars. Many critics have also compared the growth of Bitcoin to the Tulip Mania, where single bulbs of tulips were sold for more than ten times the annual income of a skilled worker.
Speaking of Bubbles, it is also notable to understand how bubbles are formed. There are generally said to be two types of investors, the value investors, whom asks questions like “Is this getting too expensive now?” as well as the momentum investor, whom then conversely asks questions like “Am I missing out on the trend here?”
On the other hand, Cryptocurrency’s market cap is rising by the day and has hit US$541bn with little signs of slowing down. This means that Bitcoin’s rally is far from over and does not mean it is going to collapse, at least, not anytime soon.
Furthermore, it is speculated that Bitcoin will breach the US$70,000 threshold at the end of 2018.
Many investors have also associated Bitcoin with Gold, as the earliest form of cryptocurrency with a finite supply and increasing difficulty to mine for using computing power. The notion of its rarity with its ability to be traded at a fraction e.g. 0.00001 btc further drives its price.
A Singaporean’s Starter Guide; “How to buy in?”
If the above has yet to put you off, and you are determined that Cryptocurrency will help you grow your investment then read along. A very common question that will always be asked would then be “How do I start?” The first step would then be to put your Fiat money (legal tender paper money) SGD into an exchange. The few popular exchanges that Singaporeans use to put in Fiat would be CoinHako, Gemini followed by Coinbase.
For many Singaporeans, their first exchange would be with Coinhako - https://www.coinhako.com/ , which is a Singapore based exchange which deals with SGD and MYR
CoinHako employs a simplistic design to its webpage, with only a few buttons to click and extremely easy for laymen to understand. However, you can only purchase Bitcoin and Ethereum (BTC & ETH) on this website. If you are interested to buy into other Alt coins, you can transfer your coins to another exchange which will be listed below. Coinhako charges a fee of 0.9% for every Purchase or Sale of Cryptocurrency. Use “COINGECKO” promo code to get discounted trading fees of 0.7%. As Singapore Banks are trying to disassociate themselves with Cryptocurrency they have been closing Exchanges’ Fiat accounts. As such the only way to transfer money in is through Xfers which can be found on CoinHako “Deposit SGD via Xfers” (Requires account creation and verification).
Gemini - https://gemini.com/ is a US based exchange opened by the Winklevoss twins whom are also the first Crypto Billionaires in the world. They operate similarly to CoinHako except for that you have to do a Bank Transfer from POSB or OCBC Remittance and undergo USD conversion. For a step by step guide, please look on Pennywise https://pennywise.sg/deposit-sgd-gemini/
Trading fees for Gemini is only 0.25% however it will be reliant on the FX exchange rate. But more often than not this would be the cheaper option to buy in BTC and ETH.
Different types of coins; How to buy ALT coins?
Now that you have an idea on how to convert your SGD into BTC and ETH, which essentially is the chips into the crypto world, you are ready to know that BTC and ETH is not the only currencies that make up the Crypto world. There are approximately 920 types of coins each with it’s own purpose. For example, Bitcoin is built to be a currency while Ethereum is built as a platform for decentralised applications to be built upon. These organisations release a “Whitepaper” which is essentially a report with its background, purpose, aims and targets; with the main goal of raising funds to realise the project. Following which these organisations will go for an ICO (Initial Coin Offering), which is pretty similar to IPOs for listed companies but works more like Kickstarter. After this phase, the coins can get listed on an exchange for speculative trading.
To buy into Alt coins, you need to trade them with your existing BTC or ETH, different exchanges may offer different Alt coins and the more popular coins are listed on multiple big exchanges. Generally the more popular coins are listed here:
*Note that a coin can potentially lose all its value and be worth nothing after a period of time.
Popular exchanges which Singaporeans use are Bittrex, Binance and Bitfinex. Bitfinex and Binance has iOS and Android App developments for which you can monitor your cryptowallet and trade on the fly. (SGD> CoinHako/Gemini>Buy BTC/ETH>Transfer BTC/ETH to Bittrex, Binance or Bitfinex> Buy ALT Coins)
How do I know if it is a good time buy or sell?
Generally the rule of “Buy Low, Sell High” applies here. But how high is high, and how low would low be? Obviously the best case scenario would be then to buy on a dip, but what happens when the dip dips further? It would be useful to study the charts to look for trends and the market rate; then to identify a good point to buy into. This would then rely on loads of reading and monitoring of the news. But a good strategy would be to cost average over weekly buy ins, that way the impact is softened and the cost averaged over the number of transactions you have performed. There is also always a cyclical pattern of mini bubbles when popped we call as “Corrections”, which essentially mean to correct the inflated price back to a more neutral level. This can mean that coins can lose from 10-50% of their value overnight. ALT coins are generally more volatile and can add to the volatility of Cryptocurrencies. Next we will discuss about the two general types of cryptoinvestors.
HODL actually means “Hold On with Dear Life”. Generally this is the strategy that most people take especially if the market is bullish even if you have lost 10-20% of your coin value due to buying in at the wrong point, but are optimistic that prices will rise more than that.
Ever seen a friend checking out his phone/App every 5 minutes or may even have 5-10 buy and sell orders readily lined up. This group of people predicts and takes advantages of the day to day price difference to make an earning.
There is a very common saying of “Never keep all your eggs in one basket”, and this is exceptionally true when it comes to your investment. A common mix for people have a diversified portfolio like this: 50% BTC, 30% ETH and 20% ALTs, other examples include 50% ETH, 30% BTC and 20% Alts. ALTS have generally a higher risk profile but may bring in higher economic benefits while BTC and ETH have a proven history to rise against the odds.
As turbulent and exciting as the crypto world can be, it is also important to diversify investments so that you have a good mix of Crypto, Blue Chips, Bonds or even Stocks in your portfolio.
On an additional note, the golden rule of investing is: Never invest money you cannot afford to lose and never overreach to put more money in than you can afford. Investments are different from savings and savings are required for a rainy day.
Mathew Lwee is a Business Development Professional currently entrenched in the Leisure and Hospitality sector. He also has investments in the Semiconductor and Additive Manufacturing Industry. Passionate in Brand Development, Digital Marketing and Management Consultancy, Mathew is also an avid volunteer, golfer and diver. Follow his blog at Mathewlwee.com.