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Is It Time To Buy Bitcoin?

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Bitcoin Trading At Lowest Price in 2014

time to buy bitcoinFor those who have been tracking Bitcoin lately the coins are trading at the lowest prices so far in 2014. Right now (2/16/14 1:20 A.M.) the coins are trading at $648 to USD on Bitstamp. While there has been some turbulence in the marketplace thus far in 2014 Bitcoin has recovered each time a “catastrophe” has happened. Right now there are currently 12.4 million coins in existence with a market cap of $8.1 billion. Due to the latest drop in price many are wondering if it is Time To Buy Bitcoin?

If we look closely at the most recent events that have transpired its easy to see why the prices have fallen so sharply for the third time in 2014. This time the drop in price was caused by Mt. Gox (an exchange based in Japan) that has halted any withdrawals from their exchange. The reason why Mt. Gox has halted withdrawal is due to a technical problem with the way transactions are processed. It’s a complicated to comprehend if you are not very tech savvy and understand the procedure behind a bitcoin transaction.

Here is Mt. Gox’s Non-technical explanation on the matter:
“A bug in the bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur. Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent. MtGox is working with the Bitcoin core development team and others to mitigate this issue.” Mt. Gox Statement Regarding BTC Withdrawl Delays.

For those of you who have a more technical understanding of the coin a full explanation is made available later in the article mentioned above.

Whether or not this is the case or the whole truth behind why Mt. Gox has halted Trading (there have been rumors speculating that they are sitting on a house of cards and do not have the reserve requirements to fulfill withdrawal requests) the market has shot downward presenting yet another opportunity for new and interested buyers to take the plunge and purchase some coin. Let’s discuss some options below.

Higher Risk Equals Higher Reward

Right now new buyers have 2 options when it comes to purchasing Bitcoin.
1. Roll The Dice
2. Play It Safe

Option 1
mt go bitcoinThe price of Bitcoin’s on Mt. Gox is significantly lower than market value on other exchanges due to the fact that users on the exchange can not withdraw their money or their Bitcoin. Other major exchanges such as Bitstamp and Coinbase have prices currently holding around $650.00 USD. Mt. Gox, however, is currently trading at $279.99 (2/16/14 1:50 A.M.). So if you are interested in getting a deep discount you have a chance to get Bitcoins at 43% of face value. The risk is that you will not be able to withdraw your coin or your money and Mt. Gox Collapses.

With new technologies errors are expected from time to time and it has not been smooth sailing for Bitcoin since it was created back in 2009. There was a hack that crashed the entire market back in 2011 and there has been new such as China banning Financial Institutions from trading Bitcoin along the way. Major negatives for an outside investor who doesn’t understand the market. While many of these things were bad for Bitcoin in general Mt. Gox has had its own issues through the years. For those of you who are not familiar with the exchange here is a quick summary. Mt. Gox was the world’s largest exchange, but many investors who have been with Bitcoin from the beginning were not to fond of it. The owner of the exchange is a bit of an oddball and the exchange has some powerful people (in the Bitoin Community) behind it, but many have not trusted it fully. If you do want to take a huge gamble you have the opportunity to get some very cheaply priced bitcoin currently on Mt. Gox.

Option 2
buy bitcoin on bitstampFor those of you who don’t like to take on that much risk (especially, since the investment itself is very volatile) other exchanges such as Bitstamp and Coinbase offer a much safer trading option then Mt. Gox. Since, Mt. Gox was the largest exchange the news from them has dragged down the entire market from price stabilizing around $900 to prices between $450 and $650 USD the past few days. Right now is an opportunity to get in at a low price. Assuming Mt. Gox doesn’t fully collapse.

buy bitcoin on coinbaseIf you have legitimate concerns about a full collapse on Mt. Gox (like myself) then perhaps a progressive buying strategy would be a wise choice for your investment. In short, a progressive buying strategy is an incremental investment in an asset. To do this simply calculate how much money you are willing to invest in Bitcoin and divvy it up into smaller investments over time. As the price of Bitcoin falls (due to bad news) your investments incrementally increase so you an purchase the coin at a lower average price. Of course, if the price of coin soars you don’t make any further investments, but you will make money on the portion you invested in. Typically, when doing a progressive strategy I like to double my investment each time, and make new investments after a 15% fall.

For instance lets say I had $10,000 to invest. I was interested in purchasing Bitcoin, but worried the price was going to continue to fall. I would take my investment and split it into several portions of $625.00, $1,250.00, $2,500.00, and $5,000.00. The first purchase I make would be at $650.00 (for this example), and I would get almost 1 coin. The second purchase would be at $552.00 (650 x .85 = $552.00). This would roughly equal 2.25 coins. The third investment would occur at $470, and I would accumulate 5.32 coins. Finally, the final investment would occur at $400 and I would accumulate 12.5 coins. This would make an average price per coin of $474.00. If after the first investment the price of coin rises then I would simply save the rest of the money for another opportunity.

The Time To Buy Bitcoin Is Now

Right now I consider Bitcoin a strong buy due to the current environment the price of coin is at the lowest levels of 2014. Looking at technical indicators such as moving averages, bollinger bands, and bar charts the price of coin compared to YTD is at breakout levels. The price of the coin will be largely influenced by the events that transpire at Mt. Gox whether you are using that exchange or not. Knowing this it I would suggest the tiered (progressive) investment strategy that I outlined above. The news from camp Gox should be coming any day now and users of that exchange and investors on other exchanges will have a clearer picture (maybe as soon as today). Watch the developments closely if you are interested in purchasing coin. Before the news breaks I would suggest taking a chance at investing now. If favorable news hits early you will miss out on this great opportunity. If bad news breaks you will have a chance to get more coin for an even cheaper price.

buy bitcoin ytd price
Photo Courtesy of: Bitcoin Charts

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