Before I ever bought a stock, opened an IRA or paid attention to real estate interest rates, I invested in cryptocurrency. Back in the fall of 2013, Bitcoin was known more for being a means-of-payment on Silk Road than it was for being something Jim Cramer would speculate about on CNBC.
Was I an early adopter of Bitcoin? Not quite.
Technically, I did have some BTC in a Coinbase account in 2013. I thought the price was extremely overbought at the time. Hell, the cost of one Bitcoin was reaching over $200 — what a bubble! I knew there were other cryptos out there, and one of them was bound to achieve the same price levels as Bitcoin.
After countless hours of due diligence, pouring over the markets, and researching the most secure place to deposit my funds — I did the only logical thing one could have done in those days…. I deposited all my Bitcoin into a Mt. Gox account and started trading for Dogecoin.
It’s safe to say I had a rocky start with cryptocurrency.
I was young, impatient, greedy and frankly, I didn’t even have the money to lose. However, I learned some valuable lessons, and I began to understand how markets worked.
Before my days of trading crypto, I had always imagined supply-and-demand as some abstract theory business professors would preach about regarding global logistics or macroeconomics. Watching cryptocurrencies move up and down exchange ledgers as sellers and buyers battled one another for price dominance was a real-time example of how value is defined.
Moreover, I’ve learned about the foundation of currencies within societies.
We’re often taught that people started with the barter system, when in fact, it’s much more likely that society began with credit and debt-note systems.
Dan raises chickens and he needs a new chair — James builds awesome wooden chairs (Ticker Symbol: AWC), and he’d like a fresh chicken. They meet somewhere, and boom, a trade goes down!
But how likely was it that both Dan and James were in the same market, at the same time, looking specifically for what each other had? Not very likely.
James doesn’t need a chicken, but he’s willing to give Dan an awesome wooden chair (AWC) he built. Dan could write James an I.O.U. note worth one AWC of debt. And what if James could pass that note on to someone to pay for something else? We now have a noted record of debt, in circulation, for our hypothetical world!
What exactly gives our hypothetical promissory note value? It’s the same thing that provides any currency with value. Trust. Trust from James, Dan, and the broader society that the note is in fact, worth one awesome wooden chair (AWC).
If you’ve ever asked the question “How does Bitcoin have value?” then you should consider how fiat currency came into existence. There are plenty of real, historical examples like the one above, and I highly suggest reading (even just the first chapter) of Debt: The First 5000 Years by David Graeber.
The book is fascinating, and Graeber does an excellent job of explaining how societies develop debt and currencies all while using excessive amounts of historical examples to support his case.
What does any of this have to do with me buying Dogecoin? I suppose I bought into the community trust of Dogecoin. I thought Reddit memes would be enough to take us to the moon. I thought the idea of Dogecoin becoming the most massive market cap for cryptos was some ironic destiny that would leave us all laughing in the face of the Federal Reserve. Much sad — it never happened.
All-in-all, my personal misfortunes don’t take away from the incredible revolution we’ve already seen with Bitcoin, Ethereum, and cryptocurrencies in general. Although I didn’t buy and hold Bitcoin in 2013, I still bought into the underlying premise.
The premise that we the people control the basis of value for our currencies, not the big banks or the government. Even if the currency is a Shiba Inu with a space helmet on strapped to a rocket ship.