Bitcoin: Hindsight and the Law of Accelerated Returns

Did anyone actually followed my advice and bought bitcoins back in December 2013? I hope so because four years ago 1 Bitcoin was < $600 and now it’s < $20000. The ROI on this one is tremendous, it’s more than 3000%.

time to buy bitcoins

Albert Einstein is quoted as saying that the most powerful force in the Universe is the compound interest. Well, he didn’t knew about Bitcoin.

My abstract image for Bitcoin is that of a currency that actually represents freedom and privacy, two qualities that a lot of people are willing to  pay a heavy price in order to achieve. This being said, no matter how hard governments and authoritarian powers try to crackdown and to control it its value will only go up. Now, in hindsight, it turns out that the states and governments are starting to bow in the face of Bitcoin and not the other way around (central banks will start in 2018 to hold reserves of cryptocurrencies).

When you buy one Bitcoin you get instant value for it, you get freedom and anonymity,  you get a currency that it’s in limited number, the maximum number of bitcoins that can be mined being somewhere around 21 million (the real number is even smaller because there are reportedly millions of Bitcoins that got lost).  When you get a Dollar you get a fiat currency that it’s not backed up by any reserve of gold and it’s not worth the paper it’s written on. Add to this the money multiplier effect that is used by banks to virtually increase the money supply.

Will Bitcoin continue it’s rocketing path up? It’s quite probable because the hype is only starting up, blockchain startups are popping up everywhere and more and more people are aware of cryptocurrencies. We are living very interesting times, the new technology is doing things that were not possible in the past, you can now be among the top 50 richest men in the world and nobody knows who you are (Satoshi Nakamoto), you can carry your considerable wealth with you in a special physical crypto wallet and you can walk the streets being completely unknown.

I’m not sure if the old economic laws are still applicable, a bubble might never come despite what the old dinosaurs in economy are saying,  technology brings change and returns that are increasing exponentially. Ray Kurzweil, the futurist who came up with the Law of Accelerating Returns stipulates that humans are linear in nature and technology is exponential. When you take a human, linear activity like the economy and bind it to a currency that is also bound to an exponential technology you might get very interesting results. We have to wait and see what happens.

This being said, it’s also never bad to be cautious, getting a positive return on your investment is not astrophysics or rocket science, it’s simply ‘buy low and sell high’, if you managed to buy Bitcoins at a low price maybe now it’s the time to reap the harvest, to take the gains and to invest in yourself and in other assets.

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