Wednesday, 17 August 2016

Bought My 1st Bitcoin, Halving and Bitfinex Hacking

 Hello Bitcoin! 
My interested in Bitcoin had been purely on an "academic" level, until now. I decided to put some skin in the game as Warren Buffet would say. So i started the ball rolling on buying a Bitcoin. Of course, knowing the risk of Bitcoin, i only put in my play money. The kinda amount that i wouldn't lose a minute of my sleep if i lose it all.

I investigated a few alternatives of buying a Bitcoin in Singapore (where i'm living now). There're many possibilities ranging from buying it from a Bitcoin ATM (which Singapore has quite a few) to buying from a Bitcoin vendor, to buying it directly from an individual face to face.

Each of these options have draw-backs to me. With ATM, the practical limit is really tens of dollars. Even with Bitcoin vendors, they limit purchase to $100 or so. Buying directly from individual would require me actually tear my bum from my seat, which doesn't sound like an attractive option.

Finally i decided to get it from a local Bitcoin exchange. There're a few of such exchanges in Singapore available (a number of them sprung up recently), i finally picked Coin Hako.

I thought the process would take 2 or 3 working days at the most from transferring funds from my saving account to purchasing a Bitcoin in Coin Hako. I encountered quite a few technical hiccups with Coin Hako that i eventually bought my 1st Bitcoin after 7 working days.

I expected it wasn't easy because all these are quite new, but i didn't expect it to be so challenging. I guess that's why each Bitcoin is still priced only under $1000.

 The Halvening 
I thought about getting into Bitcoin back in 2015 when it was around $225. But i took my eyes off it for a little while, and it steadily - ok, more like rapidly - climbed to a high of $768 in June (2 months ago). The price rise was caused mainly by the talk of Bitcoin halving (sometimes called the halvening. I guess a play with word of "happening").

Bitcoin price chart  from 2015 to 2016

I even got several promotional emails about such "secretive" event. Some wanted me to buy their ebook, while others wanted me to sign up to their subscription service to reveal this halving event and why this event would make the price of Bitcoin skyrocket. One of them wouldn't reveal even the name of the cryptocurrency where this halvening was about to occur.

I'm wary - ok paranoid - about these sales spiels. Just google "Bitcoin halving", and you will find out everything there's to know and more. Nor did i buy any Bitcoin in anticipation of this halvening that took place on 9 July 2016.

There's even a website that gives you a count down of Bitcoin halving event. Actually, there're many such websites.

This Bitcoin Halving countdown website shows a rocket launch, suggesting such event would propel the price of Bitcoin like rocket.

Bitcoin price chart 2016
Should read "peak for 2016", not "Peak for 2015"

I think Brexit would also have some positive effect on BTC price, but i wouldn't think it should only be marginal. But then Bitcoin takes on this quality - at least partly - of gold that whenever there's economic and/or political uncertainties, it helps the price of Bitcoin. I was too busy to look at BTC market because Brexit had a huge positive impact on the price of gold, and i'm a gold trader (among other markets).

I didn't buy into this halvening (or Bexit) because i know that from trading on the equity market that the market will price in such event long before it occurs. As expected, the price started to run up at rapid clip from 22 May and peaked on 16 June, a few weeks before the actual halving day on 9 July.

Of course, just the very hype about this event within the more informed Bitcoin community would also has a inflating effect on the price as the date of the halvening drew near.

This is called buy on rumour sell on news. Of course, the halvening isn't a rumour. What is rumoured is the suggestion that after the start of the date of the halvening, the Bitcoin price would simply skyrocket. In fact, it did the opposite.

It fell from the peak of $768.2 on June 16 to a low of $603 on 22 June. It recovered a bit on the actual halvening date on 9 July to $650.6. But it still a fall of $117.6 from $768.2 to $650.6.

This peak was pushed up by the rumour of Bitcoin's rocket launch to the moon that's never occurred.

I understand that halving does increase the value of Bitcoin, over time. It shouldn't cause a sudden price spike. It was the rumour spread by people who want to profit from unsuspecting potential Bitcoin buyers that caused a brief run-up in the Bitcoin price leading to the event.

This halvening event occurs every 4 years on the average. But 4 years ago (actually slightly less. Nov 2012), the Bitcoin community would be so small and Bitcoin is unheard of by most, such newsletters wouldn't make much money selling this halving event (they probably hadn't heard of Bitcoin themselves). 4 years from today, i would imagine fewer people would fall for this trap (especially readers of this article). So the halvening this year provides a perfect timing for them to profit from the uninformed.

Because it's a known and predetermined event, it should therefore be a non-event as far as prices are concerned, ideally. But we don't live in an ideal world. That's why i'm interested to trade Bitcoin because the market is so inefficient. All markets are inefficient. Since Bitcoin is so new, its inefficiency is in the extreme. Every little rumour would cause it to fluctuate more wildly than it should.

Bitcoin price chart  from 2015 to 2016

 The Bitfinex Heist 
After i took my my eyes off Bitcoin last year, it got pushed to the back of my mind until i got some scam emails about the halving. Even then, i haven't thought about buying it because it was still much higher than $220 that i saw last year. But when i heard about the Bitfinex hacking incident, the Bitcoin price took another tumble. That was when i decided to get into Bitcoin.

The Bitfinex heist shouldn't affect Bitcoin price. This Bitfinex incidence should affect Bitcoin the way a bank robbery should affect fiat currency. Well, it shouldn't. Nobody loses trust in the fiat currency because of bank robberies. In fact, we wouldn't even lose trust in the banks being robbed (we also still fly the airline that just has an air disaster). None of us is going to withdraw all our deposits from our banks because it was robbed this morning. This is because we believe that banks (or airline) are far safer than Bitcoin exchanges. And that our deposits are safe in the banks. These trusts are built over many decades (even centuries as in the case of banks). Since Bitcoin exchanges are so very new (the oldest is less than 6 years old), and very small and therefore they're quite insecure compare to banks (or airline). Those Bitcoin holders who have such security concerns shouldn't keep their Bitcoin in BTC exchanges. There're many ways to secure the Bitcoin from hacking of exchanges. One simple way is through cold Bitcoin wallet.

I actually keep my Bitcoin in Coinbase exchange. Well, like i said, i wouldn't lose sleep over this. Also, Coinbase has a vault option that's more secure than its hot wallet version. Its vault borrows the principle of a delayed lock in bank vaults. This means that it's safer, but less convenient because you have to wait - in this case, something like 2 days - to get your cryptocurrency out of the vault. If your goal is leaving your Bitcoin for safekeeping for a long time, just as you would storing family heirlooms and important papers in a deposit box in a bank vault. You wouldn't want to store cash there. It's a pain to get them out.

When i actually start trading, i would probably split my Bitcoin into several exchanges to minimise risks. Maybe. When i amass a small fortune of a dozen of Bitcoins one day, i may consider cold storage.

I wasn't able to get it at the lowest price of around $553 when the Bitfinex incidence happened. As i said, it took some 7 working days to get it. By then the price had moved up and i bought my 1st Bitcoin at the price of $586 (SGD $794.6) on 9 Aug 2016.

Anyway, i like to get into a market when others are rushing out the exits. I'm a contrarian investors in equity market and there's no reason that would change for Bitcoin market. After 2 consecutive drops in price, you just get more bang for your buck or Bitcoin.

 Decentralised Currency Living in a Centralised World 
It's quite interesting that Bitcoin was invented as a decentralised currency. It's a revolt against centralisation. But Bitcoin exchanges and other Bitcoin infrastructure elements like Bitcoin miners are centralised organisations. This centalisation is causing risks that Bitcoin is free of, because Bitcoin is decentralised. I guess Bitcoin doesn't exist in vacuum of ideal world. It exists within the real world frameworks of centralised infrastructure.

Satoshi Nakamoto didn't think about the centralised infrastrcture. I guess Satoshi is a cryptographer, who invented cryptocurrency. He's not specialising in other fields outside his own (i assume Satoshi is a guy. Nobody even knows if it's a person. It could be an organisation like CIA or NSA, where the best cryptographers are on the payroll. Who knows?). Somebody needs to invent decentralised exchanges. Wait, somebody did. I believe Bitshare accomplishes that.

 Watch Out! Fun Rides Ahead! 
One of the reason i bought Bitcoin was so that i could get into Ethereum. Well, that would be the topics for my next post.

Let my BTC and ETH fun rides begin !

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