I’ve been dealing with some bad FOMO with respect to bitcoin recently. I passed up an opportunity to buy in at $2,500, and, in part haunted by this and by my failure to be even remotely aware of the bitcoin vision years ago, I’ve been considering taking a small long position at current prices.
For weeks I regularly felt the FOMO pulling me in. Every time I looked up the price of bitcoin, it was higher. So I funded my Coinbase account once more to be ready for a buying opportunity, but ultimately I decided to pay off the last of my debt instead. (If you do use Coinbase, consider trading on the integrated GDAX platform to minimize your fees.)
Here’s why I went with paying off my last $7,300 in debt rather than with buying bitcoin.
First, let’s anticipate an argument against paying off debt: I fully admit and agree that if you have the vision to invest in a disruptive technology early, and you believe your investment will appreciate significantly, you are better off making the investment than paying off low interest debt, provided you don’t need the money and are willing to lose your entire investment.
At this point in the bitcoin price cycle, that may still be the case. I could be giving up a tenfold increase in the capital that I’m deploying to pay off my low interest rate (1.99%) auto loan, on which I have ten months remaining. Calculating the simple interest left on my loan, I am saving $121 by paying the loan off early. This pales in comparison to the potential 10x increase I could maybe get if I invest in bitcoin. A 10x increase would net me a $65,700 return on my principal. $121 obviously pales in comparison next to $65,700.
In spite of this, I still went with debt payoff, for a couple reasons. First, debt payoff is a sure thing, and it will significantly change my monthly cash flow by removing the largest expense (my auto loan) from my budget. Second, any further run-up in bitcoin is entirely possible, but also entirely speculative.
I have tried to be extremely open-minded with respect to bitcoin. I have read and listened to a large quantity of material for and against bitcoin, put forward by believable authorities, and I come out like this: bitcoin is really cool technology but it’s a speculative bubble, because the people currently bidding the price up aren’t using bitcoin for transactions. They’re just speculating, hoping they’ll be able to sell out at higher prices. The volume of actual bitcoin transactions isn’t going up significantly.
This was a very difficult decision, because I want to invest in disruptive technologies, and I want to be a part of movements similar to bitcoin.
In persuading me to continue to stay out of bitcoin, the emotionality and youth of many bitcoin promoters, and the opinion of Ray Dalio, swayed me.
First, I am seeing numerous arguments about bitcoin, in which young, first-time speculators, are saying that if you’re against bitcoin you don’t get it, you’re just questioning it because you haven’t made money, it’s a new paradigm that will change everything, etc. A lot of defensiveness and unnecessary aggression as well. I think this is telling of who is moving the price.
Remember, the fundamentals of and methods for valuing bitcoin are still unclear.
Second, I just finished reading Ray Dalio’s Principles (listened to it on Audible as one of my freebies), and this book is completely perspective-altering. It may be the best investment book, and book, period, I’ve ever read, and it isn’t even Ray Dalio’s book on economics and investing, which is forthcoming.
Ray Dalio is a believable authority on investing, that’s putting it very mildly. And after listening to his thoughts, I know he is way better at finance than I will ever be. So, what did I do? I looked up his thinking on bitcoin. Ray Dalio thinks it’s a bubble, and that’s good enough for me. I am happy to defer to him, even if the price keeps going up.
Here is a very short history lesson on the tulip bubble. The similarities to the bitcoin rise are readily apparent.
Looking forward, I would like to participate in the downside, and potentially upside, of bitcoin if I can do so at attractive prices through options (assuming options on the futures will trade with liquidity and at attractive prices). I believe the volatility will continue (even though there are arguments saying the futures will reign the volatility in), and options plays such as straddles and strangles may be appropriate for making non-directional plays that bet on a large move up or down, and only lose a limited amount of money if the price stays stable.
Once the bitcoin futures (XBT) have launched (currently expected mid-December), I may put up a post on the basics of how to trade them, what I see in the bitcoin futures options as far as liquidity and pricing (if and when options are launched), and what my strategy will be at that time.
Great YouTube Resources
Here are some excellent and balanced bitcoin and crypto resources for your listening pleasure:
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