Cryptocurrency Update

Back in July, I wrote about how some people are putting their retirement savings into cryptocurrencies like Bitcoin or Ethereum. This is incredibly risky and stupid. However, if you have some extra money you can afford to lose, gambling money, if you will, it might be fun to experiment with cryptocurrencies. As I mentioned in that post, that is what I did.

My Experience With Cryptocurrencies

I initially purchased $200 worth of Ethereum around the time I wrote that previous post. Approximately 3 weeks later, the exchange rate fell and I bought another $200 worth. I used Coinbase as my vendor. I signed up using a referral link like this one, which gave me a free $10 worth of Bitcoin when I bought $100 worth of any cryptocurrency Coinbase supports (which currently is Bitcoin, Ethereum, and LiteCoin). You'll get the same deal if you use that link to open an account.

I opted to buy Ethereum because it was cheaper than Bitcoin and I felt it had more potential for growth. When I bought, I was credited $10 worth of Bitcoin for the referral bonus, which worked out to about 0.003697 Bitcoin. Doing the math, you can see that one Bitcoin was worth $2,704.90 at the time. Today, one Bitcoin is worth about $16,000 (after peaking at over $17,000 today). My $10 had grown to about $60.

I purchased a total of 1.38918114 Ethereum for the sum amount, including the Coinbase commission, of $406. One Ethereum was trading for about $287.94 at the time. As of this writing, one Ethereum is worth $462.07. I sold my coins and received $623.20 after commissions.

To keep the math simple, let's assume I bought all my Ether at the same time - 160 days ago. My ROI then works out to 53.5% in 160 days. That gives an annualized ROI of 122.04%!

My ROI on Bitcoin is infinite, since I got that money for free.

Not too shabby!

I'm Getting Nervous - Time To Exit

As I said, this was gambling money for me. I was prepared to lose it all. I thought about selling just enough Ether to recover my initial investment and letting the rest ride, but in the end, I decided against that, for the following reasons:

I am hearing all sorts of stories now about how Bitcoin is in a bubble. Personally, I think it is, as are all cryptocurrencies. I think they were when I bought some. Nevertheless, I bought some as a gamble to see what would happen. I'm not adverse to bubbles and it is possible to make money in them. The trick is being able to get out before they burst.

Although I believe Etherium is a more stable currency long term (and thus, less susceptible to huge value crashes due to its ability to run programs in the blockchain) right now, its value is closely tied to Bitcoin and they tend to move somewhat in sync. So if Bitcoin crashes, I think Ether will as well.

Over one million dollars worth of Ethereum, approximately 15% of the Ethereum network traffic, is being used to run a Pokemon-like game called Cryptokitties.  Farmville, anyone?

Bitcoin has reached a level of mass inroads into the general financial markets. Mutual funds that trade cryptocurrencies have been formed. Wall Street  hedge funds are investing in it. The Chicago Board Options Exchange has started selling Bitcoin futures.


The potential for Bitcoin price manipulation seems credible.


Keep in mind, these are virtual currencies. There is NOTHING underlying Bitcoin or Ethereum to give it its value.

To me, all of this adds up to a bubble.

I decided not to be greedy. The run-up may continue for quite some time. However, news of problems, such as hundreds of millions of dollars in lost digital currency, wallet providers getting hacked and closing down,  and cryptocurrency hard forks has made me very nervous. I decided I was happy with my 122% ROI and cashed out.



Note: Two days after I sold my Ether, Coinbase suspended all trades in Ether and Litecoin when a rally caused prices to spike. Ether was trading at over $630 - almost $200 higher than when I sold two days ago - but if you can't trade, the run-up does you no good. This unreliability of the trading platform is another thing that was making me nervous. And it's not just Coinbase. Other virtual currency wallet companies can do the same thing. There is very little regulation of these companies right now.