BITCOIN at KSh 500,000, Is it still a worthy investment opportunity?

As the world continues to develop very rapidly, so have the different investment opportunities for those willing to take the risk and grow their wealth. From the traditional investment in physical assets like real estate, commodities like gold, silver to the paperless investments in the stock market, a new form of investment has slowly emerged in crypto currencies commonly called ‘cryptos’

History

Bitcoin is a digital currency and the internet’s version of money that was created in 2009 by an unknown person only identifying himself as Satoshi Nakamoto.

The digital currency is generated by computers that are a part of a network in a process called mining. This process takes as inputs which are computer by all participants on the network and a successful block is mined on average every 10 minutes. The successful participant is then rewarded with a set number of Bitcoin (50 Bitcoins at inception but currently at 12 Bitcoins) thereby incentivizing the Bitcoin network participants The complex math behind the making of bitcoins is designed in such a way that it becomes progressively more difficult to mine/make Bitcoin. While it was possible for ordinary users to mine Bitcoin back in 2007/8, it is now left to dedicated specialists with hundreds of millions of dollars invested in the most advanced computing equipment.

Although it is no longer possible to mine Bitcoins for the general public, it is possible to buy Bitcoins from various sources like peer to peer websites, crypto trading exchanges and many others. These Bitcoins are stored in at an electronic public address for which the owner controls the electronic private key. The owner can send and receive Bitcoins and pay for goods and services.

Controversy

Bitcoin came to notoriety during the Silk Road scandal, an online underground marketplace where users could buy all manner of illegal goods and services like firearms, cocaine, hitmen services, hacking etc. Participants were using the anonymous nature of Bitcoin to make transactions, until the FBI shut down the service, prosecuted its founders and confiscated 145,000 Bitcoins valued at over 400 Million dollars today. This catapulted the crypto currency into the global spotlight.

Later in early 2014, the main trading exchange handling over 70% of Bitcoins transactions based in Japan, Mt GOX was hacked, subsequently filed for bankruptcy. Mt Gox announced that it had lost approximately 800,000 Bitcoins belonging to customers and the company, valued at over 2 Billion dollars today.

Locally in Kenya, Bitcoin hit the headlines when a local startup company Bitpesa went to court against telecommunications giant Safaricom over the latter’s decision to suspend BItpesa and its partner Lipisha’s MPESA accounts. Safaricom accused Bitpesa of failing to adhere to Anti Money Laundering (AML) procedures in Kenya and failing to get Central Bank of Kenya (CBK) clearance to operate its financial services on Kenyan territory.

The courts ruled in favor of Safaricom however BitPesa’s business in the country and the company continues to expand its footprint through out Africa.

Bitcoin has also received negative press from many Ponzi scheme type of operations where masterminds have used Bitcoin’s historical mind boggling growth to trick investors into investing in fake crypto currency projects many times backed by Multi Level Marketing concepts popularly known as pyramids.

Price Volatility

As we speak, the price of a Bitcoin is at USD 2,475 equivalent to KSh 254,900 and it has a market capitalization of USD 40.5 Billion. Truly phenomenal figures, almost double the size of Kenya’s 2017 national budget of USD 26 Billion, four times bigger than Safaricom market capitalization and equal to many top international blue chip companies valuations.

Historically, the first recorded price of Bitcoin is about eight hundredth of a cent for one bitcoin with 1,300 bitcoins costing USD 1 was at the start of October 2009. From its launch to it’s all time highest price of USD 3,000 in early June 2017. That equates to a return on investment (ROI) of over 375,000 times! An investment of KSh 1,000 at it’s launch would have resulted in KSh 375 Million as of early June 2017.

The first ever purchase of goods done with Bitcoins on record was 2 pizzas of USD 25 paid for using 10,000 Bitcoins back in May 2010. Those two pizzas would now be worth over USD 33 million!

The Bitcoin price continued to rise steadily and hit USD 1 by early February 2011 after appearing on various internet forums. By end of 2012, the price had reached over USD 15 per coin with Bitcoin starting to appear in mainstream media outlets.

The year 2013 was the price breakout for Bitcoin, catapulting it over the USD 1,000 mark in the midst of the Silk Road and Mt Gox scandals. Bitcoin had hit the main stream headlines and moved from underground to well in the public view.

The next two years saw a spectacular decline in the price hitting a low of less than USD 200 at the start of 2015. However 2017 has seen yet another exponential rise peaking at an all time high over USD 3,000.

It is this crazily volatile history that has seen such frenzy and money being poured into the crypto currency markets with over USD 10 Billion traded every single day.

Is it a worth investment?

After seeing the mind boggling ROI that Bitcoin produced with its exponential rise in the last 7 years, many will be wondering whether it is a worthy investment at present. With it’s volatile nature, the savvy and professional investors and traders will surely make very good money doing short term trading in this instrument. In addition, those with the knowledge of leverage in trading have a good opportunity to make fantastic returns.

While for the long term investors it still holds some opportunity as many experts argue that the price could still continue to rise and even cross the USD 10,000 mark in the next few years. For the investors looking for long term opportunities, Bitcoin is possibly one sector to look into, a sector with higher risk but similarly higher returns. The journey will surely not be a smooth as evidenced by a recent correction in the price of crypto currencies which wiped nearly USD 4 billion was off the Bitcoin market capitalization after a correction. This was a 19 per cent drop from its all-time record high of early June 2017.

Bitcoin vs Gold Vs Stocks

Gold which has been a traditional store of value is compared to Bitcoin in some investment circles but this is purely comparing apples to oranges. Bitcoin is heavily speculative while Gold remains a stable asset, internationally accepted as standard. While the price of Gold per ounce has remained steady around USD 1,270, Bitcoin has exploded in 2017 more than doubling its price.

Looking at major stock markets in the world, the New York Stock Exchange (NYSE) is 6.23% up this year while the London Stock Exchange is up a measly 3.8% year to date. The Nairobi Stock Exchange fares slightly better having hit an 8 year all time low in January 2017 and is up just under 19% year to date. With this year seen as a bullish year for stock markets, Bitcoin is still trouncing all other major markets making it a haven for savvy investors.

Future

The future certainly looks very bright for crypto currencies in general. The technology has slowly matured, a whole host of alternative crypto coins called ‘AltCoins’ have come into the market promising to bring real world applications. While many crypto currencies were banking on that ‘currency’ aspect, all but have failed with their technology not able to meet the demands of today’s speed and volume of transactions handled by giants like VISA and Mastercard. Bitcoin for example processes transactions in roughly 10 minutes rendering it unsuitable for real world payments. It has however achieved some success as a store of financial value and in the remittances world.

A new breed of crypto currencies led by the Ethereum platform have emerged and promise offer much more flexible and real world value using the technology of the blockchain. Different altcoins have developed applications in the area of payments, advertising, social media, micro payments, anonymity and others to make sense of the blockchain to members of the general public. A couple of other altcoins like Ripple have received wide spread collaborations for their use of the blockchain technology by many big players in the financial services industry.

Ripple has been described as not only being a cryptocurrency but also the name for an open payment network where that currency is transferred.

Disclaimer:

It is very important to do your own analysis before making any investment based on your own personal circumstances. We accept no liability for any investment decisions taken from this informational article.

The government of Kenya does not formally recognise and authorise the use of Bitcoins and crypto currencies.

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