I Bought Bitcoin -- Here’s What Happened

I wouldn’t say that I bought into the hype. I would say that I did this more as a learning experience.

I’ve received so many questions about how to buy, and where to buy, and even more about the legality of the process, so I figured what the heck — I’ll buy some myself.

So that’s what I did. I bought bitcoin. And here’s what happened…

In the last two weeks, bitcoin has blanketed the radio waves. No matter if you keep up with Bloomberg or CNBC, or you’re nosey neighbor continues to chat your ear off about the cryptocurrency, odds are, in the past few weeks, you’ve heard the hype surrounding Bitcoin.

And a lot of this hype is definitely deserved.

As I write this, a single Bitcoin costs $2,900 — up $1,342 over the last month.

That’s an 86% return!

Who wouldn’t be interested in this sort of gain? Even the most conservative investors are probably thinking twice about the chance to get in.

After all, a very popular article has been circulating recently with the headline…

If You Bought $100 of Bitcoin 7 Years Ago, You’d Be Worth $75 Million Today

That’s a lottery-like return on an investment!

Or should I say… “investment…”

Here’s How I Bought My Share

I used the website Coinbase.com. After much research, this seemed to be the most popular Bitcoin Wallet with some good reviews and security accolades.

Setting up an account went as follows:

First, you enter in personal information like your name, email, and home address (which was questionable).

You then have the option to link either a credit/debit card or your bank account. These are the only two ways to fund future purchases.

I chose to link a debit card. Mostly because I trust the security of my debit card bank most in case of a hack, and my credit won’t be affected. If you can’t tell, I’m not too trusting of the whole Bitcoin system…

However, there’s one problem with linking a card — it’s that you’re given low limits to the amount of purchases per week. As I write this, my limit is $150 worth of Bitcoin per week, which at the time I bought was just 4.4% of a single Bitcoin. I’m not retiring anytime soon on these low investments.

A colleague of mine raised a good point about these limits. He says they’re probably in place because anyone could steal a credit card, purchase thousands of dollars in the untraceable currency, and disappear forever. Sounds like a decent reason if you ask me…

On the flip side, linking a bank account can increase your purchasing power to $2,500 per week. Which would be better suited for high volume buyers.

But for my purposes, the $150 debit card limit was enough. After all, this is more of an experiment than an investment.

Interesting side note: If Bitcoin is actually priced on supply and demand forces, doesn’t the buying limits set by these sites skew demand? I’ll save this for another time.

Anyway, so once these steps were done, I could immediately purchase my own stake in the cryptocurrency.

But I didn’t just pounce, I watched the price movement for several hours.

When I first logged on, the price was trading around $2,250. But when I finally set up my account where I was ready to buy, the price was around $2,350. So I waited…

It took hours for the price to drop to around the $2,250 mark where I planned to pull the trigger. But it always shot back up when it was within $10 of that point.

And then, out of nowhere, the price plummeted. Down $150 in just minutes. I finally pulled the trigger — I entered in $100 and bought 4.4% of a $2,228 Bitcoin.

Add on top a $3.99 commission paid to Coinbase, and my final investment is $103.99 for 4.4% of a single bitcoin.

As you can see from the chart above, the price continued to plummet sharply after I bought in.

But I expected this. Buyers must understand the risks associated with this extremely volatile cryptocurrency. And after all, I only spent $104, so I held tight…

Selling Bitcoin

I prefer a buy and hold investing style, but in the case of Bitcoin, I don’t really know what I’m investing in, so I decided to sell shortly after buying to give you the inside scoop.

For this transaction I had to link my bank account. This seemed interesting because other trading platforms like E-Trade or Robinhood allow you to hold cash in your account without depositing it back into your bank.

But anyway, I hit the SELL button when the price of one Bitcoin was $2,890. And surprisingly, I was able to sell at that price. Which is better than a lot of stock trading platforms I’ve used in my lifetime.

After a 1.49% service charge was taken out, I just sat back and waited 2 days for the funds to hit my bank account (This was a bit nerve-racking as once again, I’m not too trusting of the Bitcoin system).

So my final Bitcoin investment was as follows:

Total Cost — $103.99

Sale Price After Fees — $127.60

Profit — $23.61 or 22.7%

Overall, I made some money. But how I made money? Or why? I’m not too sure.

I’ve read a lot online recently about the increased demand from Asian countries like Japan and South Korea. But why is the demand spiking?

Supporters of Bitcoin will tell you it’s a “safe haven” currency. But better than the USD? Or gold? I’m not convinced. And to me, any currency that regularly fluctuates 5-10% in intraday trading isn’t a “safe haven.”

Bitcoin is just being hyped up in the media right now. “A new form of money” as some people call it. Get in now, because one analyst says “it’ll be worth $100,000 in 10 years.”

But if you want my advice, stick to legitimate investments to fuel your retirement. Invest in the solid companies that we talk about here at The Daily Edge. At least with these companies you’ll know what you’re investing in…

Here’s to keeping your edge,

Davis Ruzicka

Davis Ruzicka
for The Daily Reckoning

The Daily Reckoning