My investment into crypto currency was a bit of a journey which started from hearing about it very early on, to finally purchasing crypto in late 2020.
As this was a journey, lets begin at the start. Like most people, when I first heard about Bitcoin, I was sceptical; highly sceptical. However, I continued to pay attention, and spend time learning, but not doing much more than that. Instead, I focussed my money and time elsewhere.
However, as time progressed, and the idea of portfolio diversification and transferability became important considerations, I started to gain a greater appreciation for bitcoin and other crypto currencies. The technology supporting these projects was also of increasing interest both from a personal perspective, and its application in my career.
I also started to understand that there was a significant amount of value being derived from adoption. As such, the intangible nature of the asset was somewhat mitigated by the volume of users, and their perception of value that would ensure retention of value.
Following on from this, one additional point that I feel is appropriate to mention regarding value, is accessibility. Given anyone can purchase crypto via an online platform, I would argue that never has there been such broad access to any tradable asset. Whilst I use an exchange, the counterparty of that sale or purchase could be located on the other side of the world, and as such the potential market is significant. This compares to company shares which are only tradable on a registered exchange, often in only one country.
Supporting the above statement, according to Statista[1] there are 5.22bn smartphone users worldwide in 2020, or 66% of the world population. Compare this to the estimated number of people who have a bank account which according to the World Bank was around 69% in 2017, or 3.8bn people. Whilst there is not much difference between smart phone users, and bank accounts, the rate of growth for smart phones far outstretches the growth of new bank accounts and as such is likely to overtake in the very near term, if it has not done so already.
In my opinion, this shows that access to crypto currency is potentially easier than access to a bank account (note that some people use brokers to purchase crypto currency[2]). As such, there is an increasing chance that crypto will be the method of choice for payments given its ease of transfer, and accessibility.
Since I have invested in crypto currencies, there have been other developments such as El Salvador adopting the currency as legal tender alongside the USD[3], institutional investors purchasing Bitcoin as part of a diversification strategy, and as of October this year a listed Bitcoin Futures ETF. In my opinion, this shows that over the 13 years of since Bitcoin came into existence, both the rate of adoption, and type of adoption (across retail, institutional) has only increased which will support acceptance, and value.
When I first entered the market, I decided to purchase a small amount of bitcoin and proceeded to initiate a round robin transaction (purchase of bitcoin, then withdraw cash to my bank account) to ensure I fully understood the process. In addition, this would provide comfort that I am able to liquidate my position should I want to. The transaction worked although I had to transfer funds to one of my accounts in the UK and will then have to transfer funds back to my New Zealand bank account.
Given the whole process took less than 45 minutes from converting into Tether, then crediting my UK bank account, the ease of this process was rather amazing, and only served to further increase my interest and support for the technology behind crypto currencies.
Whilst the speed is quicker than traditional finance, a user of crypto finance should consider the fees within a round robin transaction. Whilst I am not able to go into detail as to what fees were charged (this lack of transparency of fees is part of the problem), through reading the below you may start to understand that the transaction potentially costs more than expected:
- Sell NZD and buy BTC – potential for FX charge / spread and service fee for purchase of crypto.
- Sell BTC and buy Tether – potential for spread on conversion of BTC to Tether.
- Sell Tether and buy GBP – Spread between Tether and GBP.
- Transfer GBP to UK account – Transfer fee.
- Transfer from UK account to NZ account using traditional finance.
Through these five steps, there is significant room to add charges into the transaction through steps one and four. Whilst some fees are known, I suspect that there will be fees charged into the spread. Given the crypto market is opaque, it is rather hard to determine how much this spread will be.
As such, whilst crypto transfers are faster, I am unable to say with any confidence that they are cheaper that traditional channels. I do however expect this to change in the future as both volume and sophistication of participants increases.
Since this initial transaction, I have steadily increased my purchase of crypto currencies and now include Bitcoin (BTC)[4], Ethereum (ETH)[5], Cardano (ADA)[6], and Shiba Inu (SHIB)[7]. Since holding these currencies, I have seen some significant gains and falls in the profitability of the portfolio which has ranged from as low as -7.3% up to 92.5% during regular test periods with some rather significant swings in between. As such, it is correctly assumed that crypto currencies are not for the feint hearted, and not for those investing a nest egg that will be required later. In short, losses should be expected.
In relation to my plans for these currencies, I will continue to hold, and to acquire more on a regular basis (being in lockdown has increased my disposable income). I plan for my main purchases to be in BTC and ETH which are currently 16% and 62% of my portfolio respectively (ADA is at 12% whilst SHIB is at 10%).
Whilst I could sell now and take some profit, my view on the use of crypto currencies is a long term one, and a generational one. Given the online adoption new technology by younger generations, I suspect that crypto currencies will become second nature for them, and traditional models will be phased out as older generations move on.
This is an interesting space, and one that will likely change the way we bank and buy in the very near future.
[1] Number of Smartphone and Mobile Phone Users Worldwide in 2021/2022: Demographics, Statistics, Predictions – Financesonline.com
[2] The cryptocurrency dons of Beirut – Rest of World
[3] In El Salvador, More People Have Bitcoin Wallets Than Traditional Bank Accounts (forbes.com)
mindthemoney 