Bitcoin Investors: Are They Destined For Wealth?

Bitcoin has made many millionaires over the course of its 15-year history, but not everyone who invests in it will become rich. Bitcoin's value has increased significantly since its early days, and it is now worth around $72,000 per coin. While there is still potential for Bitcoin to create more millionaires, investing in it comes with risks and uncertainties. The timing of investments, the highly volatile nature of the cryptocurrency market, and the lack of guaranteed future value all contribute to the unpredictable outcomes associated with Bitcoin investments.

Bitcoin's volatile price

The high volatility of bitcoin has led to a host of non-believers who see it as nothing more than a speculative investment. However, some public figures have expressed a change of opinion on the cryptocurrency, indicating a trend toward positive sentiment. Bitcoin's volatility can be advantageous for traders, who can take advantage of price fluctuations to turn a profit. During the period of January 2018 to June 2019, investors could benefit from daily price swings of up to 16% on the upside and over 18% on the downside.

The Bitcoin Volatility Index (BVIX) measures the upward and downward movement of bitcoin's price in US dollars. Volatility is a measure of how much the price of a financial asset varies over time, and bitcoin's volatility is measured by how much its price fluctuates relative to the average price over a period. The higher the volatility, the riskier the asset is to hold, as its value can substantially increase or decrease on any given day.

Bitcoin's volatility has implications for its usage as a currency, diversifier, hedge, and store of value. The high volatility makes it challenging to use as a medium of exchange and a unit of account, as it is prohibitively costly and difficult to derive the true value of a good or service. However, over very long horizons, bitcoin can be considered a store of value, despite its short-term volatility.

Bitcoin's finite supply

Bitcoin inventor Satoshi Nakamoto, the anonymous name used by the creator(s) of the cryptocurrency, built a stipulation into its source code that it must have a finite supply. This means Bitcoin is a limited resource, similar to gold.

The limited supply of Bitcoin has already had a significant impact on its value. As of December 18, 2023, there were 19.57 million bitcoins in existence, with 1.425 million left to be rewarded. This means that nearly 90% of all Bitcoin has already been mined. The rarer an item is, the higher its value, and so the limited supply of Bitcoin has driven up its price.

The maximum total supply of Bitcoin is 21 million, but it is unlikely that this number of bitcoins will ever be reached due to the use of rounding operators in the Bitcoin codebase. The total number of bitcoins issued is expected to fall slightly short of 21 million.

The finite supply of Bitcoin has also led to concerns about the future of Bitcoin mining. Miners are incentivized to function as verifying nodes by Bitcoin rewards, and with a finite supply, there will eventually be no new bitcoins to reward miners. However, Satoshi Nakamoto provided a solution to this problem in Bitcoin's announcement release, stating that once the Bitcoin supply runs dry, the reward system will use just transaction fees. Currently, Bitcoin miners receive transaction fees on top of any Bitcoin block mining reward.

Bitcoin's long-term performance

Bitcoin's performance is often analysed in relation to its halving cycles, which occur approximately every four years, reducing its inflation rate by half. According to Bitcoin analyst Willy Woo, holding Bitcoin for at least one halving cycle, or about four years, has historically resulted in positive returns. Over these four-year periods, Bitcoin has demonstrated an average annualised return of 30%. This provides a compelling case for long-term investors, indicating that even buying at the peak of a bull market can lead to substantial gains if held for a minimum of four years.

Bitcoin's finite supply of 21 million coins further bolsters its long-term prospects. As the issuance rate of Bitcoin decreases through halvings, the laws of supply and demand come into play, favouring price appreciation over time. This dynamic, coupled with Bitcoin's increasing utility, strengthens the argument for its long-term value appreciation.

While Bitcoin's long-term performance has been remarkable, it's important to acknowledge that past performance doesn't guarantee future results. The cryptocurrency market is highly volatile, and timing the market can be challenging. Additionally, there are numerous other factors to consider, such as regulatory risks and the emergence of competing cryptocurrencies.

In summary, Bitcoin's long-term performance has been characterised by significant price appreciation, particularly during its early years. The halving cycles and finite supply dynamics have contributed to its positive long-term trajectory. However, it's essential to approach any investment in Bitcoin with caution, recognising the inherent volatility and uncertainty in the cryptocurrency market.

Bitcoin's legality

The legality of Bitcoin varies from country to country. While some countries have embraced its use, others have banned or restricted it. Here is a detailed overview of Bitcoin's legality around the world:

Countries Where Bitcoin Is Legal

Bitcoin is legal in most developed countries, including the United States, Japan, the United Kingdom, Canada, and Australia. In these countries, Bitcoin is generally treated as property for taxation purposes, and businesses dealing with Bitcoin are subject to anti-money laundering and counter-terrorism financing laws.

In the European Union, Bitcoin is recognized as a crypto-asset, and while there is no specific legislation regarding its status as a currency, VAT/GST is not applicable to the conversion between traditional currency and Bitcoin. However, VAT/GST and other taxes, such as income tax, are still applicable to transactions made using Bitcoin for goods and services.

Other countries where Bitcoin is legal include Mexico, El Salvador, and Mauritius.

Countries Where Bitcoin Is Illegal

Bitcoin is illegal in a handful of countries, including China, India, and Morocco. In these countries, there are restrictions on the use and trading of Bitcoin, with varying degrees of enforcement.

Some countries have not explicitly banned Bitcoin but have advised against its use, such as Saudi Arabia and Jordan. Additionally, some countries have banned the use of Bitcoin as a payment method while still allowing its trading and holding, like Indonesia, Thailand, and Vietnam.

Evolving Regulatory Landscape

It is important to note that the regulatory landscape for Bitcoin and other cryptocurrencies is constantly evolving. While some countries have introduced regulations, others are still debating how to control and regulate its use. As a result, the legality of Bitcoin can change over time, and it is essential to stay informed about the latest developments in your jurisdiction.

In conclusion, while Bitcoin is legal in many countries, its legality varies, and it is essential to understand the specific laws and regulations in your country before investing or using Bitcoin.

Bitcoin's competition

It is clear that not everyone who invests in Bitcoin will become rich. In fact, according to distribution data, the majority of people who own Bitcoin are not making a significant profit. Bitcoin's competition is growing, with thousands of other cryptocurrencies, known as altcoins, now available. These include:

• Ethereum (ETH)
• Tether (USDT)
• XRP (Ripple)
• Binance Coin (BNB)
• USD Coin
• Cardano (ADA)
• Solana (SOL)
• Dogecoin (DOGE)
• Shiba Inu (SHIB)
• TRON (TRX)
• Polygon (MATIC)
• DAI
• Avalanche
• WBTC

These alternative coins vary in their purposes, from jokes (Dogecoin was created by engineers to comment on the wild speculation of the cryptocurrency market) to coins that pay for transactions on a distributed and global virtual machine.

Ethereum, the second-largest cryptocurrency by market capitalization, is a decentralized software platform that enables smart contracts and decentralized applications (dApps) to be built and run. It uses ether, its platform-specific cryptographic token, to pay validators who stake their coins for blockchain work.

Tether, one of the first stablecoins, is another of Bitcoin's competitors. Stablecoins are cryptocurrencies that aim to peg their market value to a currency or other external reference points to reduce volatility. Tether's price is tied to the US dollar, with developers claiming to hold one dollar for every circulating USDT.

While Bitcoin continues to lead the pack of cryptocurrencies in terms of market capitalization, user base, and popularity, its competitors are growing in number and strength.

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