Bitcoin Riches: Can You Get Rich Quick?

Bitcoin, the world's first and most successful blockchain-based cryptocurrency, has made many millionaires since its creation in 2009. The price of one Bitcoin surged to over $60,000 in 2024, an eightfold increase in 12 months, before falling to half that value in just a few weeks. Bitcoin's overall price increase has created a diverse set of millionaires and billionaires, with some attributing their wealth to creating products and services to grow the cryptocurrency ecosystem. In this article, we will explore the topic of investing in Bitcoin and discuss whether it can make you rich.

Bitcoin's early days

Bitcoin's first significant price increase occurred in October 2010, when its value jumped from US$0.10 to $0.20 on 26 October. It continued to climb, ending 2010 at $0.30. In 2011, Bitcoin's price surged past $1 and reached a peak of $29.60 on 8 June 2011. However, a sharp recession in cryptocurrency markets followed, and Bitcoin's price dropped, ending the year at around $5.

The year 2012 was relatively uneventful for Bitcoin, with only minor price fluctuations. However, 2013 witnessed strong gains, with Bitcoin crossing $100 by April and US$1,000 by November. It ended the year at US$732, marking a historic gain.

The early days of Bitcoin also saw the emergence of a dedicated community of supporters and adopters, including prominent figures such as Hal Finney, Wei Dai, and Nick Szabo. Despite some technical challenges and security breaches, Bitcoin's price continued to climb, attracting more attention and investment.

By the end of 2013, Bitcoin had established itself as a significant store of value and a growing number of businesses began accepting it alongside traditional currencies. Its early days laid the foundation for its future growth and impact on the global financial system.

Bitcoin's performance in relation to halvings

Bitcoin's performance is often analysed in relation to its halvings. Halvings are events that occur approximately every four years, during which the mining rewards are halved, leading to a halving of the supply rate of new Bitcoins. This means that the number of new Bitcoins created roughly every 10 minutes is reduced by half.

The first Bitcoin halving occurred in November 2012, with subsequent halvings taking place in July 2016 and May 2020. The most recent halving was in April 2024, and the next is expected to happen in 2028.

Bitcoin's performance has been positively correlated with its halving events. Historically, each halving has been followed by a significant surge in Bitcoin's price. For example, after the first halving in 2012, Bitcoin's price increased from around $12 to over $1,200. By the time of the second halving in 2016, Bitcoin's price had reached around $650, and it eventually peaked at almost $19,000. While the third halving in 2020 saw a more modest increase, with Bitcoin's price rising from around $9,000 to a record of $67,549, it still represented a significant percentage gain.

It is important to note that other factors also influence Bitcoin's price, and it cannot be guaranteed that future halvings will have the same positive impact on its value. However, the reduced supply of new Bitcoins coming into the market due to halvings is expected to drive up the price if demand remains constant. This is because the halving phenomenon is designed to create artificial inflation and make Bitcoin more scarce, thereby increasing its value.

Overall, Bitcoin's performance in relation to its halvings has been positive, with each halving event followed by a significant increase in its price. However, it is essential to consider other market factors and remember that past performance does not guarantee future results.

Bitcoin's finite supply

The limited supply of Bitcoin is designed to prevent inflation and create a hard electronic currency. Bitcoin inventor Satoshi Nakamoto designed the cryptocurrency with a cap to limit the supply, increasing its scarcity over time, which tends to increase demand and price. This scarcity is often compared to gold, a finite resource with a limited supply.

The total number of bitcoins issued is not expected to reach 21 million due to the use of rounding operators in the Bitcoin codebase. By the early 2030s, nearly 97% of Bitcoin is expected to be mined, with the remaining 3% coming into existence over the following century, until around 2140.

The finite supply of Bitcoin has already had a significant impact on its value. As a finite resource, the rarer Bitcoin becomes, the higher its value. This dynamic is evident in Bitcoin's price history, with explosive gains made in its early days. From 2009 to 2012, Bitcoin's value jumped from less than a tenth of a penny to more than $5, an increase of 710,000%.

The limited supply of Bitcoin also affects the incentives for miners, who play a crucial role in securing the network and processing transactions. Currently, miners are rewarded with both Bitcoin block rewards and transaction fees. However, once the maximum supply of 21 million bitcoins is reached, no new bitcoins will be issued, and miners will likely earn income only from transaction fees. This could lead to higher transaction fees to compensate for the loss of block rewards.

While the finite supply of Bitcoin has contributed to its value and scarcity, it is important to note that past performance does not guarantee future results. The long-term trajectory of Bitcoin's value is influenced by various factors, including market volatility, demand, and the increasing utility of the cryptocurrency.

Bitcoin's drawbacks

Bitcoin has made many millionaires, but it also has several drawbacks. Here are some of the key disadvantages of investing in Bitcoin:

Extreme Price Volatility

Bitcoin is prone to large spikes and dips in value. For example, in 2022, its price fluctuated from $16,000 to over $22,000 in just three months. This volatility is partly due to its relatively small market size, which makes it vulnerable to price fluctuations.

Regulatory Uncertainty

The regulatory landscape around Bitcoin is still evolving, with different countries implementing varying regulations. This uncertainty can be challenging for investors and businesses, as they must navigate compliance requirements and potential legal risks.

Security Risks

Bitcoin is susceptible to various security risks, including hacking, phishing, and other malicious attempts to gain control. Additionally, losing access to private keys or having them stolen can result in the permanent loss of one's Bitcoin holdings.

Limited Acceptance

Bitcoin is still not widely accepted as a form of payment. Only a small group of online merchants accept Bitcoin, limiting where you can spend your money. This lack of widespread acceptance also makes it unfeasible to completely rely on Bitcoin as a currency.

Environmental Concerns

The Bitcoin mining process consumes a significant amount of energy due to the computational power required to solve complex mathematical problems. As the Bitcoin network grows, energy consumption and environmental concerns will likely increase.

No Minimum Valuation Guarantee

Since there is no central authority governing Bitcoin, there is no guarantee of a minimum valuation. If a large group of investors decides to sell their Bitcoin, it could significantly decrease its value, hurting those with substantial investments.

Scalability Issues

Bitcoin has scalability issues, which means that at a certain level, it runs into major problems that slow down transaction processing. This can cause frustration for participants and potential financial losses.

Complex and Risky for New Investors

Understanding and investing in Bitcoin can be challenging, especially for those unfamiliar with digital currencies. The concept of cryptocurrency and the underlying blockchain technology can be complex, and investing in something one doesn't fully understand is inherently risky.

While Bitcoin has its drawbacks, it's important to note that it also offers several potential advantages, such as accessibility, independence from central authorities, and the potential for high returns. However, due to the risks outlined above, many people still view it as a risky investment.

Bitcoin's future

Bitcoin has experienced significant price fluctuations since its creation in 2009, with rapid surges and crashes. While it has made many millionaires, the days of it trading for less than $100, or even $10,000, are likely gone. The most explosive gains were in its early days, with a 710,000% increase from 2009 to 2012. Bitcoin's performance is often analysed in relation to its halvings, which occur approximately every four years, reducing its inflation rate by half. Holding Bitcoin for at least one halving cycle has historically resulted in positive returns, with an average annualised return of 30%.

Bitcoin's value proposition revolves around its finite supply of 21 million, with the ongoing reduction of its issuance rate through halvings. This dynamic of supply and demand could favour price appreciation over time. Additionally, Bitcoin's utility continues to grow, with El Salvador accepting it as legal tender for monetary transactions.

However, Bitcoin faces several challenges that could impact its future. Firstly, its price volatility makes it an unstable medium of exchange, and its high energy consumption has raised concerns about its environmental impact. Regulatory risks also remain, with varying approaches to cryptocurrency regulation worldwide. While some countries, like El Salvador, have embraced it, others, like China, have banned it.

The underlying blockchain technology, however, holds promise beyond Bitcoin and cryptocurrencies. Blockchain can improve transparency, reduce costs, and streamline supply chain tracking and fund transfers. Its potential applications extend beyond finance, and it could disrupt multiple industries, including supply chain, sustainability, and voting.

In conclusion, Bitcoin's future remains uncertain. While its finite supply and increasing utility could drive price appreciation, volatility, regulatory uncertainty, and environmental concerns are challenges to its widespread adoption. Nonetheless, the blockchain technology that enables Bitcoin has the potential to revolutionise various industries, regardless of Bitcoin's ultimate fate.

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