Project 5: Bitcoin Investing and More

Project 5:  Bitcoin Trading Bot Application

Why Bitcoin?

Note:  This is reprint of my 27 January 2017 post. 

Bitcoin is an amazing invention for many reasons.  For freedom loving people, it unshackles one’s wealth from government meddling. It’s designed to prevent “money printing” and thus prevent monetary inflation and the dilution of wealth by those who earn and save. For the “unbanked” throughout the the developing world, it allows debit-card-like transactions with very low fees.

Many say Bitcoin (or something like it) will be the future of money. Why? Because it’s nearly inflation proof and its built-in scarcity makes it a store of appreciating value.  It’s “governed” by consensus of its miners; and it’s less susceptible to manipulation than than any other store of value, other than gold. In fact, it has the capacity to to return money to the “gold standard.”  

Though some may call it money or currency, it’s classified by the U.S. Internal Revenue Service and other countries as an asset – and its traded like stocks or other equities.  However, there are more and more retailers adapting it as a payment system. Want a Tesla automobile? You can buy one with Bitcoin.

Built in scarcity

Unless there is a different worldwide consensus, there will only be 20,999,999.9769 (essentially 21 million) bitcoins created. This finite supply almost ensures constant appreciation (and eventually stabilization), so long as there is a demand for it. In contrast, government fiat currency is designed to be worth less over time.  

For example, using the Consumer Price Index as, it would take $24.70 (2015 USD) to purchase the same thing a 1913 dollar would purchase (see  Did you know that the U.S. Federal Reserve’s stated goal is 2 percent annual inflation (depreciation value)? That means in 10 years, one’s savings would be worth 20 percent less.  Unfortunately, the average inflation rate has hovered around 2.9 percent, annually.  So that 20 percent loss of purchasing power is actually closer to 30 percent.

For a government “For and by the People,” America’s policy seems to be more in favor of government and less in favor of its people. Inflation is good for a debt-ridden government but its bad for savers. Think of that young couple saving for home or an elderly person trying to survive on their retirement savings.

One idea: A trading bot?

One business idea is a trading bot. As a bitcoin semi-early adopter, I would like to capitalize on bitcoin’s appreciating value and prevent losses due to market swings from unforeseen “issues” — I’ll discuss these issue later on.  Bitcoin’s value is largely controlled by speculators and investors, its value can swing wildly. Another consideration includes the move away from cash and toward digital national currencies.

If cash becomes extinct then governments around the world will be able to monitor every transaction. As a believer in privacy and liberty and a student of history, I can only imagine the abuses dictators of past could have done under the auspices of controlling “black markets” or “corruption.”

Though governments will likely create their own digital currency akin to bitcoin, the difference between government and private digital money is who it advantages.  In every instance, governments lean toward inflation (less purchasing power) and people lean toward stable money – money that maintains its purchasing power.

A trading bot would be able to monitor the bitcoin (and other digital “money”) and trade when it advantages the bitcoin holder. If the market crashes, I don’t want to find out the day after. I want to be like the millionaire that has his or her own automatic trading bot.

What is a market issue?

A few paragraphs above I mentioned “issues” that may, in effect, derail bitcoin. Let me explain this a little.  In 2014, Mt. Gox, a Japaneese bitcoin exchange, accounted for 70 percent of the world’s bitcoin trading. But, by year’s end it was bankrupt. Either by hacking or internal theft, it was discovered that 850,000 bitcoins were missing – worth (at the time) $450 million (USD). A similar “issue” happened to Bitfinex, a Hong Kong based exchange, in 2016. However, unlike Mt. Gox, Bitfinex made arrangements with traders and investors to repay the stolen coins.

Now in early 2017, India and China have caused a bit of a run on bitcoins. India decided to outlaw common currency notes to dissuade tax evasion and corruption. In China, the government is restricting currency transfers outside of the country to discourage capital from escaping its boarders. In both instances, bitcoin has become a sought after method to preserve wealth and maintain private transactions.

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