Is it Easy to Take Profit from Bitcoin?
Taking profit from bitcoin is not as straight forward as taking profit from most other assets. If you believe in bitcoin enough to invest in it you are going to have legitimate questions about how to take profit from it.
Taking profit from stocks, property, art, vintage cars, baseball cards, oil, silver etc is relatively straight forward (gold is perhaps more complex). When they go up in value, you can sell all or a portion of these assets into fiat currency (dollars, rubles, yen, pesos, francs, pounds etc). Simple.
The problem with bitcoin is that it proposes a new financial system. The more ideological bitcoin supporters buy it because they believe that all fiat currencies will devalue at an ever-increasing rate and that bitcoin will replace the US dollar as the global reserve currency. From that perspective, to sell bitcoin back into fiat when it rises in value would be a strange decision. Up to this point bitcoin rises in value it is because there is a rise in the adoption (metrics used to measure adoption would be: number of wallets, usage, total transaction value, market capitalisation). In the short term it might make sense to take profit. Sell into fiat when bitcoin is up and buy back when it is at a lower price.
But, if we are talking about the global adoption of this new financial system to the point of replacing the current one, the longer term view is that any sale into fiat currency is a sale into a devaluing system. Any gain from selling into fiat would only ever be short term.
However ‘short term’ is only as long as a piece of string. We could have confidence that our thesis is correct and yet we may not be proven correct, even in our lifetime. A shift from one financial system to another may be very slow, even from this point in time. It may also be made slower because the most politically and economically powerful people in the world have a vested interest in maintaining the current system. Time is a variable that is hard to predict.
It might be useful to look at the history of technical innovation though. Usually when a technology is effective it’s adoption is fast. The spinning jenny, the combustible engine, the automobile, the aeroplane, the telephone, the radio, the television, the mobile phone, the internet, the smartphone.
But all these innovations took time to go from conception to adoption. Their evolutionary period is hard to measure. None of them simply sprang into existence. Their creators are often hard to pinpoint and they relied on knowledge gained by peers and ancestors. So when exactly did these inventions come into existence and when exactly did they reach mass adoption? What factors slowed down and accelerated the process?
The first bitcoin was mined in January 2009, during a period of financial crisis. It was invented by the anonymous Satoshi Nakamoto. But even he/she/they were not working in a vacuum. Since that first coinbase (mining event) bitcoin has risen in value to the point where it has 10% of the market capitalisation of gold. Gold has taken around 5000 years to reach its valuation, bitcoin has taken 12 years. Clearly we are not yet at mass adoption but it’s adoption rate is reminiscent of other successful technologies. There is a significant financial ecosystem now built around it and it has penetrated the public consciousness.
This article lost focus and became difficult to finish. I elected to abandon it. Here’s a potato.