When Should I Spend My Bitcoin?

Bitcoin investing can be a wild ride; you not only have to deal with the learning curve of self-custody and taking responsibility for the asset but also deal with volatility reflected in the trading of the bitcoin float. Depending on the time you get into bitcoin, you could experience drastic price appreciation as in the case of a bull run or dramatic price decreases, as is evident in a bear market.

Although bitcoin is used as an investment or a trading vehicle, it does carry more functionality, such as using it as collateral for loans, remittance rails, and spending. While much of the market focus is on speculating on the value, more people are starting to use it to transact by using bitcoin to purchase goods and services.

Over recent years, bitcoin has undergone upgrades geared towards improving transaction speeds and functionality, with the birth of second-layer solutions like the Liquid Network and Lightning Network. These second-layer solutions are designed to facilitate faster and cheaper transactions and make day-to-day eCommerce practical and affordable

As bitcoin evolves, we see it starting to hold with merchants, which is driving regular usage as providers of goods and services see the benefit of acquiring bitcoin and holding it on their balance sheets. Now that you are able to spend your bitcoin easier than in previous years, I think the more appropriate question you should be asking yourself is:

Should I be spending this bitcoin?

You’re a bitcoin whale.

The most obvious reason to spend your bitcoin is if you’re an early adopter and hold a massive amount of bitcoin. You’ve naturally seen your net worth explode over the years, and its reasonable to want to tap into some of that newfound equity.

Even with the future price appreciation you could experience, you already have a core position that will continue to give you that exposure. So for you to spend a few bitcoin at current prices might not lead to future regrets.

1. When it’s your only form of savings.

If you’ve gone all in on bitcoin and it’s your only means of accessing savings or your other savings are in more illiquid assets, it makes sense to want to spend your bitcoin.

While saving, regardless of the asset you use to store your purchasing power in, is essential, you still have to live, pay bills and support your family.

2. When it’s cheaper to use than the fiat system.

A lot of complaints are lodged at the cost of using the bitcoin network. Due to its transparency, we have a history of bitcoin transaction costs. While many critique bitcoins’ transaction costs, it’s not as if fiat transactions are without cost.

The fiat system, however, is a far more convoluted method of moving money, with plenty of intermediaries looking to secure their slice of your transactions. In certain situations, such as remittance transfers, international purchases and forex transfers, bitcoin is a far cheaper option.

If your purchase would work out cheaper in bitcoin, it makes more sense to conduct the transaction in BTC and replace that bitcoin with fiat or convert the fiat you would have spent into bitcoin first before you conduct the transaction.

3. When you want to do tax loss harvesting.

Bitcoin losing up to 80% of its value from its all-time high is not uncommon in fact, it’s almost a right of passage to see your net worth inflate and deflate dramatically over the course of a year or two.

If you’ve held bitcoin during a downturn and it’s lost a considerable amount of purchasing power, you could use this purchasing power loss to your advantage. You could sell your bitcoin or use it to purchase another asset and record the loss.

In tax-loss harvesting, you sell an investment that’s underperforming and lose money in fiat terms. Then, you use that loss to reduce your taxable capital gains and potentially offset up to a certain of your ordinary income. You will need to check what that limit is for yourself based on your country and then consult a local tax professional to ensure that your country does recognise bitcoin losses as a viable tax losses.

4. When you’re restricted from traditional finance rails.

The legacy financial system is based on custody providers assuming the risk of debiting and crediting different participants. While you might have a claim on the funds and you can issue a request, you have no final say on whether those transactions will be finalised.

Depending on your banking laws, the country you’re living in and the laws that govern your country, certain purchases might be restricted, deemed taboo or worse, completely outlawed. If you tried to purchase something that your government or financial institutions don’t want you to own something your purchase might be revoked when using fiat.

When it comes to bitcoin, that won’t be the case; if you’re using bitcoin correctly, no one can censor your transaction, and in times like this, it’s the far better medium of exchange.

5. When the seller refuses any other payment method.

Business owners worldwide are constantly in a race against time when operating under a fiat system. While they are there to provide customers with value, what they get in return also needs to maintain value for a certain period. When you run a business, your goal is to acquire funds that can pay your expenses and leave you with something left over. When you conduct business in fiat, the longer you hold it, the more you lose, so you constantly have to turn over capital to avoid realising those losses; this becomes harder when your currency devalues at a faster rate.

While those operating on a dollar standard might not see the issue immediately, the majority of the world doesn’t have the luxury of a stable currency and as these currencies collapse, bitcoin becomes a far more attractive prospect for saving and commerce.

In the case of international transactions, money can take ages to clear and thus put a hold on transactions. Businesses cannot release products or services if funds have not arrived, and while they wait, this costs them money.

Using bitcoin with its 10-minute clearing times on the base chain or new instant second-layer transactions eliminates these issues making it far more attractive to do business in bitcoin. In cases where businesses have realised the benefits of bitcoin, they may insist on being paid in BTC, so you’ll have to fork over sats if you want their goods or services.

It’s yours to spend

The situations above are merely my thoughts on when you should access the value held in your bitcoin stack, but these are not hard rules. You shouldn’t be taking advice from a random blogger on the internet when it comes to your money. It’s your life, your purchasing power, and you need to use your own discretion, weigh up the pros and cons of every purchase and decide if trading future bitcoin price appreciation for satisfying a need today will be worthwhile.

Today the need to spend bitcoin might not be very attractive as bitcoin is still largely seen as an investment option today, and its purchasing power is heavily affected by the sentiment of speculators.

But this won’t be the case forever; this is but a momentary bootstrapping phase, and bitcoin is slowly starting to find its way to more people who want to use it for commerce.

As the market becomes deeper and more liquid, volatility with reduce, and this mass mindset will likely change from financialisation to commerce. The coming years will see bitcoin entrench itself in more markets, and as the tech grows, living on a bitcoin standard will truly dawn. As an immutable digital ledger, the possibilities for safe and efficient spending beyond borders are virtually limitless, so it’s definitely worth looking out for ways to make your bitcoin go further.

Do you spend or save?

Now that you’ve heard my arguments on spending your bitcoin, which side of the fence do you sit on? If you’re new to bitcoin and have not spent your bitcoin, what is the reason? If you have spent your bitcoin in the past, what did you buy and did you love or regret your purchase?

Let us know in the comments down below. We’re always keen to hear from bitcoiners from around the world.