The Highs and Lows of Trading Bitcoin
A few years ago I wrote a computer program to buy and sell bitcoin. I called it BitBot.
Pretty soon, I began to refer to it as “him.” Naming him turned him into a little person. “BitBot made £500 today,” I’d say, or “BitBot had a bad day; he lost £900.”
Cost per bitcoin: $2,000
More often than not, BitBot made money, rendering him (and, indirectly, me) a digital Warren Buffett. BitBuffet. Unconsciously, I started to invent a little personality for BitBot. I imagined him coming home after a hard day of digital trading, his arms piled high with coins and pieces of treasure. I know this isn’t how the economy works. But my mental image of financial traders remains halfway between Fred Homepride, the bowler-hatted figure from flour packets, and a Lego pirate with a treasure chest full of gold coins.
The thinking behind BitBot was that because the price fluctuated so much I could write some code that would trade between euros, Bitcoin, Ethereum, Litecoin, and other cryptocurrencies and profit on the volatility.
Watching BitBot do his thing was compelling. Every few minutes, something would change, and during bitcoin spikes, I became hypnotized by the totals ticking up. When the price keeps growing, it’s easy to convince yourself you’re a predicting genius. Humans are pattern-spotting machines, and I started spotting (or inventing) sequences in the ever-fluctuating up and down graphs. I realized I was becoming obsessed, so I got BitBot to email me a report when something interesting happened. He really was like a little person working in an office. Even down to his boss getting him to write a pointless management report. I imagined him complaining to other bots about his creator.
Cost per bitcoin: $5,000
I wasn’t the only one fascinated by the price of bitcoin. On Reddit, communities dedicated to the price of cryptocurrency arose. “Looks like we should be able to close the 1h candle just over the resistance at $3k,” people would write, posting red and green bar charts with lines scrawled on them: “High volumes and a cup and handle,” someone would say knowledgeably, only to receive in reply: “BiTcOiN to $100,000!1!! LAMBOS!” “Lambos” meant Lamborghinis, the car everyone planned to buy once they cashed out their bitcoin fortune. Questions would pop up: “Will bitcoin hit $10k this month?” as if someone knew and the only reason they hadn’t said was that no one asked. On Reddit, these threads would show up interspersed between the other bizarre and banal questions of life: “Does anyone know a good recipe for scones?” “If you use too much alcohol gel on your hands, will you get drunk?” “Should I buy or sell bitcoin?” I found myself idly wondering about the nature of knowledge.
Reddit bitcoin threads were a mix of pictures of Leonardo DiCaprio in The Wolf of Wall Street, semi-incoherent incantations, and earnest “technical analysis” of price charts, filled with pseudo-quant trading language. You could see the magical thinking happening in real time. “If bitcoin hits $20k, I’ll live stream me eating my hat,” someone—many people—wrote. It was preemptive bargaining, like a sort of inverted stages of grief. Occasionally there was sound financial advice: Do not invest more than you can afford. What goes up must come down. But this was drowned out by a community of people playing at being traders. “Those of us who have been in bitcoin for a long time…,” people who had invested in bitcoin three months earlier would write.
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Cost per bitcoin: $20,000
This was during the bitcoin craze of 2017. It was easy to make money. All you had to do was buy bitcoin. Every day the price went up. Bitcoin was the perfect get-rich-quick scheme. And continued to be. Until very suddenly it wasn’t.
Cost per bitcoin: $3,000
In 2018, the pictures of Lamborghinis turned into pictures of rusty bangers. The daily posts about “reaching the moon” now read “wrecked.” The memes continued but were subdued. You had to hand it to the Reddit crowd, they were committed to their memes. The spectrum of human emotion was represented in text-covered, pixelated images. Perhaps those who couldn’t channel their emotions into pictures of Pablo Escobar sitting sadly on swings were no longer logging on. The people who only a few weeks earlier had been saying it wasn’t about the price but “the fundamentals” were mysteriously absent.
For his part, BitBot went quiet, only occasionally emailing me about a trade he’d done that made $2 or $3. Most of his gains were from price increases in bitcoin itself rather than his trading prowess. It turns out he wasn’t Warren Buffet after all. But then, Warren Buffet never traded like this. He read books eight hours a day for seven months and then made one trade. In more ways than one, Buffet was the opposite of BitBot, who made dozens of trades based on no knowledge at all. I read into BitBot’s now only occasional emails a subdued sense that he too had got caught up in all the excitement and was embarrassed by it all.
The problem with bitcoin is that as smart as it is, it isn’t very useful. And I say this as someone who owns bitcoin. Warren Buffet called it “rat poison,” but at least rat poison has the benefit of actually being able to poison rats. As a store of value, bitcoin is poor because the price fluctuates so much. And as a unit of currency, it’s not much better. Transaction fees are high, and acceptance is low. This might change one day, but right now, it is a digital American Express. Owning bitcoin is like being the first person with a telephone. You might feel smug, but you can’t ring anyone.
Cost per bitcoin: $8,000
And yet, the price continued to bubble along, trending up. I found myself not only thinking about the nature of knowledge but the nature of money. What is money, after all, but trust? British money has printed on it, “I promise to pay the bearer on demand the sum of…” like an elaborate IOU. If you cross your fingers when you hand over a 10-pound note, does it not count? On bitcoin message boards, people wrote darkly about “fiat,” the technical name for government-issued currency. Fiat, the car company, wrote a jokey tweet in reply. Meanwhile, we all carried on using normal, government-backed money. It was difficult to disentangle the intellectual brilliance of blockchain from the wide-eyed optimism of a new financial world order, from the desire to make a load of money from bitcoin. If this does turn out to be a fundamental shift in how finance works, it has begun with a lot more pictures of Ron Burgundy than I expected.
Cost per bitcoin: $40,000
Toward the end of 2020, I found myself glued to two ever-increasing charts: cases of coronavirus and the price of bitcoin. When I wasn’t looking at one and hoping it would stop going up, I was looking at another and hoping it would keep going up. Bitcoin spiked again, and a new generation of people posted pictures of cars they would buy when the price went up another 800%.
BitBot jumped back into action, notifying me several times a day how much money he’d made. He was, I thought, unduly excited by it all. He’d learned nothing from the last bull run and subsequent crash.
There certainly are fortunes to be made in cryptocurrencies, but then that doesn’t say much. There are fortunes to be made everywhere. Right now, bitcoin sits somewhere on the spectrum between a Roth 401(k) and a night at the Bellagio. On Reddit, the technical analysis posts are back, with their lines and annotations scrawled entrail-like over the red and green bars. Sometimes someone tells everyone that technical analysis is guessing, no more than digital tea-leaf reading. There’s a sort of muted acceptance, but the next day the bar charts are back again.
“MOON!” someone writes. “If bitcoin reaches $50k, I’ll live stream myself eating my shoes!” Like bitcoin itself, traders make a lot of promises. But I’ve yet to see any shoes eaten.