Learning the lessons of Bitcoin Pizza Day
Did you know that May 22 is considered Bitcoin Pizza Day among the most ardent cryptocurrency fans? Believe it or not, it is. More astounding than that fact is the reason behind it. Once you discover that reasons - and it will be revealed in this post - you may never look at cryptocurrency in the same way again.
Bitcoin Pizza Day is a day to remember for one of the most astonishing episodes in the history of Bitcoin. We hate to call it a 'fail', given that the person behind it really had no way of knowing any better, but we don't know what other word to use. So let us get to the details.
Spending 10,000 bitcoins
Back in 2010, Florida resident Laszlo Hanyecz was in the mood for some pizza. As an early Bitcoin adopter, Hanyecz was anxious to find ways to spend his coins. Pizza seemed like a good choice. But understand that back then, a single coin was worth less than one US penny.
To make a long story short, Hanyecz spent all of his coins on several trades. Most of it went to pizza. As the story goes, he couldn't find a pizzeria willing to accept his Bitcoins. So instead, he posted on a cryptocurrency form an offer to trade 10,000 coins to anyone who would be willing to order him a couple of pizzas. A British man took him up on the offer and Hanyecz got his pizzas shortly thereafter.
Hanyecz's 10,000 coins were worth about US $41 at the time. The man who bought them from him spent the equivalent of $25 on the pizzas. He lost money, but only for a short time. Bitcoin's price started to rise shortly thereafter. Fast forward to 2019 and do the math.
At the time this post was written, Bitcoin was hovering around $8,000 per coin. Those 10,000 coins Hanyecz traded away for two large pizzas are worth $80 million today. No one knows if the buyer has held onto the coins all these years, but we do know that Hanyecz is not living the millionaire life because he traded his coins for pizza.
Volatility is a sure bet
Hanyecz can hopefully look back on the original Bitcoin Pizza Day and laugh about it. Some nine years later, the rest of us can look back on his experience and learn some lessons. The first of those lessons is that cryptocurrency volatility is a sure bet.
Despite Bitcoin's original developer wanting his blockchain to become an alternative monetary system, it still has not achieved wide adoption among merchants. So Bitcoin remains a store of value and a financial asset. As an asset, it is subject to the same market forces that affect stocks, shares, bonds, etc. That means volatility is an ever-present risk.
If you are buying up bitcoins just so you can play Mega Moolah or other jackpot slot online, understand that the value of those coins is likely going to change every day. Some days the price goes up, other days it goes down. Sometimes you will see extended bear markets while other times the bulls will hang around for a while.
Price predictions are useless
The next lesson to be learned from Bitcoin Pizza Day is that price predictions are useless. Do not believe anyone who tells you he or she can successfully predict the price of cryptocurrency in the next week, month, or year. Throw all those predictions out the window. They are not any more reliable than stock predictions.
It is interesting to note that if you do a bit of research on so-called stock market experts, you will find their successful prediction rates rarely rise above 50%. The average investor can do just as well flipping a coin.
The reason predictions are useless goes back to the previous discussion of volatility. The investment world is plagued by one problem that is consistent across nearly every asset: investor jitters. It only takes one little detail to convince investors they need to sell. And once selling begins, it doesn't take much for it to turn into a frenzy.
Likewise, it only takes a glimmer of hope to spark buying enthusiasm. A large trading volume supported by more buyers than sellers can quickly send the price of a given asset through the roof. That is just the way investing goes.
Back in 2010, who could have accurately predicted that Bitcoin would approach $20,000 by 2017? Likewise, who saw the recently concluded crypto winter coming two years ago? A lot of people bought into Bitcoin near its peak, only to be disappointed when the price fell to under $5,000.
You need to choose a side
The next lesson here is that crypto buyers need to choose a side. By that we mean they need to choose to be either investors or consumers. Trying to be both rarely works out well. Just ask Laszlo Hanyecz.
If you want to be a consumer, that's fine. Purchase enough coins to get started in the marketplace. Use those coins to gamble online, buy a new pair of shoes, or even order a couple of pizzas. Trade your coins with others willing to exchange them for services. Do whatever you want to do in the marketplace of consumers and merchants.
As a consumer, you are less concerned about the price of Bitcoin in six months. Instead, your concern is how much your coins are worth right now. How much value can you get from them when you are trying to buy something online? That is the real question requiring an answer.
Should you choose to be an investor, treat cryptocurrency just like any other asset. Adopt a long-term strategy that relies on the tried-and-true principle of appreciation. In other words, rest in the knowledge that nearly every asset appreciates over time. Some take longer to appreciate, but they all eventually get there.
Your goal as an investor is to build a portfolio of digital assets that will grow for as long as you own them. That means you cannot be spending your coins on pizza. Every time you spend a coin, that is one less coin capable of adding value to your portfolio.
Crypto value is in utility
What we have discussed thus far leads us to the next lesson: crypto's value is its utility. For Hanyecz back in 2010, there were not a whole lot of places he could spend bitcoins. Hanyecz couldn't call the pizza parlor and place an order with his coins. He had to trade those coins to someone willing to order pizza for him. That is why he doesn't have any regrets.
Utility to him was found in trading his coins for a different commodity. Pizza was what he wanted, and that is what he got. The value of his coins translated into a good meal with plenty of leftovers.
To investors like the Winklevoss twins, the utility of Bitcoin is in its ability to store value. They can purchase large volumes of coins and then simply sit on them until the price grows to where they want to sell. And who knows? They may keep accumulating coins until Bitcoin eventually reaches end of supply. Then utility will be found in how they can convert those coins into fiat.
The point is this: the value of any cryptocurrency is not necessarily determined by its trading price. How much you pay to buy coins is only temporary anyway. We have already discussed that in the volatility issue. And because prices go up and down so rapidly, the price you pay for any group of coins quickly becomes moot.
The value of your coins is determined solely by what you intend to do with them. If all you want to do is gamble online, that's fine. A single bitcoin will go a long way at the current price. If you want to hold on to your coins as an investment, that's fine too. You alone determine how long to hold and when to eventually sell.
Go live your life
One final lesson Bitcoin Pizza Day teaches us is that it is important to go live our lives. Whether you choose to approach cryptocurrency as a consumer or an investor, crypto is not the be-all and end-all of life. There is no point in obsessing over the number of coins you own relative to the price per coin. There is more to life than money.
Laszlo Hanyecz has apparently continued to live his life in a meaningful and productive way despite his mistake nine years ago. As for his decision to trade 10,000 coins for a couple of pizzas, he still says it was no big deal.
"It wasn't like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool," Hanyecz once told the NY Times.
Cryptocurrency may someday become the default monetary system that runs the world. That is the hope of many crypto enthusiasts. But it is also possible that it will never be anything more than an investment vehicle for people who like to take their chances on the market. Does it make a difference in the end?