Why we use Bitcoin for creating wealth, not for daily payments

Why we use Bitcoin for creating wealth, not for daily payments

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Bitcoin is a freely tradable cryptocurrency. A currency needs security against unauthorized copying. With normal money this is done by the central bank and the state, with bitcoins with strong encryption and a publicly accessible database with 262 gigabytes of data in May 2020.

There is a maximum of 21 million Bitcoin to be scraped. Currently there are 18.4 million. A limited amount of a good gives hope for an increase in value. That is the matter with gold, in some areas with housing. The prospect of increased value makes people to invest in goods who bear no interest. In the following, I analyze whether buying and selling Bitcoin might bring a good return.

Bitcoin lures with impressive price fluctuations, longer periods of steadily rising prices and, unfortunately, a few crashes.

The lowest price for a complete Bitcoin in the period covered by the graph was 3207 US-$ on 2018-12-14. Successful traders bought for example for that price and sold high for 19107,46 US-$ on 2020-11-24. Which good makes six times its value in two years?

In the years after I wrote this article the bitcoin reached 40.000 US-$-

I used the close prices of the days. Bitcoin prices are changing fast along the day. About 15% of all existing bitcoins are sold on one day. Also high prices slower the market: it is visible and statistcally noticeable that high prices lower the trading volume. That is not only in cryptocurrency market. Real Estate also knows this phenomena.

The picture shows that during the normal day the prices fluctuate by 5-10%. Only on explosive days, less than 11 days out of 723, did prices fluctuate more than 15%. Considering usual transaction fees of 0.1-5%, you can win and lose very quickly. Current sales offers and trading conditions can be found e.g. here.

Bitcoins are very speculative. The reason for the many offers for investing in Bitcoin is that if somebody owns already the currency convincing others to buy it also raises the prices. Now it is possible to sell the the own stock and make a little fortune.

Using Bitcoin for payments

Bitcoin als Zahlungsmittel
Bitcoin for payments

for legal transactions:

The fees for exchanging cryptocurrency into stone age currency such as Euros or US dollars are 3-5% of the value, as is the case for transferring an amount of money to another account. The reason is the high computing power required for the encrypted currency. PayPal takes 1-2.5% of the transferred amount for the same service, the banks go down to 0.1%. The advantage of Bitcoin is the secure transmission: are the bitcoins stored in your wallet they are yours. There is no chance for the delvering side to get it back, like for example in European direct debit authorizations.

Bitcoin for the darker side of business

Are Crooks dishonest
Are Crooks dishonest

For transferring unlawful earned money the cryptocurrency is well suited. The account owner can remain anonymous; no connection can be established between the account holder and a natural person. The Bitcoin accounts are publicly visible, so the threatened person can, for example, see how much the account holder has already harvested with his criminal actions in the case of extortionate emails.

How do I change the price?

The price elasticity of the demand for Bitcoin is positive overall. That means rising prices increase demand and vice versa. It therefore makes sense to find as many co-investors as possible. These buy with you, and your bitcoins go up a bit in price. You just have to get out before the co-investors want to sell. The price may drop and eat up your gains.

Published by Johannes Winterhalter
Gaining numbers from multiple sources and transforming that into meaningful and comprehensive results - I do that since DBase III in 1988 and am now into data lakes, SQL, R and survey management.