Bitcoin Investment: Late Starter Or Missed The Boat?

Bitcoin's recent surge has sparked questions about whether it's too late to invest. While some early investors have made a fortune from the previous bull runs, there are still several reasons to believe that it's not too late to invest in Bitcoin. Firstly, Bitcoin's cyclical history suggests that after a prolonged crypto winter, a new bull market could be starting. Secondly, the upcoming halving event, which occurs roughly every four years, has historically led to significant price increases. Thirdly, institutional interest in cryptocurrencies and the emergence of new projects indicate broader acceptance of crypto as a legitimate asset class. Finally, Bitcoin's deflationary nature, capped supply, and potential as a hedge against inflation make it an attractive investment option.

Bitcoin's cyclical history

Bitcoin's cycles have been observed to occur approximately every four years, with the cryptocurrency experiencing a bull run, followed by a contraction or crypto winter. For example, in 2017, Bitcoin experienced a bull run, which came to a climax in December of that year. December 2018 was when Bitcoin hit its bear market bottom, and in December 2019, it reached a new high.

These cycles are not always predictable, and the direction of the market can be difficult to ascertain. However, some analysts have noted the importance of December in Bitcoin's market cycles, with many of the asset's tops and bottoms occurring during this month.

One theory that attempts to explain Bitcoin's cyclical nature is based on the work of legendary trader William Delbert Gann, who combined geometry and astrology to time market tops and bottoms. Gann's tools and theories have been applied to Bitcoin's price movements, and some surprising correlations have been found. For example, Gann paid attention to timeframes with intervals of three and the significance of 144 time periods. Interestingly, Bitcoin broke out of the Gann fan and retested the downtrend line on exactly 144 weeks from its all-time high.

Another factor influencing Bitcoin's cyclical behaviour is the halving event, which occurs roughly every four years. During these events, the rewards issued to Bitcoin miners are cut in half, reducing the effective inflation rate and potentially leading to significant price increases.

In summary, Bitcoin's cyclical history is a complex interplay of market forces, mathematical patterns, and events such as halving that can influence its price movements. While past performance is not always indicative of future results, understanding Bitcoin's cyclical behaviour can provide valuable insights for investors.

Bitcoin as a hedge against inflation

Bitcoin has been described as a hedge against inflation, but is it too late to start investing in it?

Bitcoin's design, with its fixed supply of 21 million coins, safeguards it from the inflationary pressures that traditional currencies face. By nature, Bitcoin cannot undergo dilution through inflation, making it enticing to investors. The cryptocurrency's decentralised architecture also means it is free from manipulation or control by central banks and governments, adding an extra layer of security for investors.

However, the unique design of Bitcoin doesn't guarantee its viability as an inflation hedge in all circumstances. The value of Bitcoin is driven by market demand and supply, with no tangible asset backing it up. This means the price can be volatile, and it can experience dramatic rises and falls over short periods, even more so than traditional investments. For example, between late 2017 and early 2018, Bitcoin's price fell from nearly $20,000 to just above $3,000. This level of volatility poses a risk for investors who may need to liquidate their holdings in times of market stress.

The regulatory landscape surrounding cryptocurrencies is another critical factor in assessing Bitcoin's feasibility as an inflation hedge. Despite gaining wider acceptance, cryptocurrencies are still subject to legal and regulatory uncertainties across different jurisdictions. For instance, governments like China and India have restricted or banned the use of cryptocurrencies, impacting their value and liquidity.

Therefore, while Bitcoin has potential as an inflation hedge due to its fixed supply and decentralised nature, it also comes with inherent volatility, regulatory uncertainties, and a relatively short historical record compared to traditional hedges. Thus, a careful, well-researched approach is crucial when considering Bitcoin as part of an inflation-hedging strategy.

As for whether it is too late to start investing in Bitcoin, some sources suggest that it might never be "too late" to buy Bitcoin. This is because Bitcoin rewards investors who have long time horizons. The true power of Bitcoin comes from letting the effects of multiple halvings compound over time. The longer one holds Bitcoin, the greater the returns as new tokens become harder to create. Additionally, with only around 15% of the world's population having adopted crypto so far, there is still room for growth in demand.

In summary, while Bitcoin has potential as a hedge against inflation, it also carries risks due to its volatile nature and regulatory uncertainties. It may not be too late to invest in Bitcoin, as its value could continue to increase over the long term as it becomes more widely adopted. However, investors should carefully consider these risks and conduct thorough research before adding Bitcoin to their portfolios.

Bitcoin's market maturity

Bitcoin has been referred to as "digital gold" since its invention in 2008. The original whitepaper that describes Bitcoin's technical function and long-term ambition compares the electricity and computing power of Bitcoin mining to digging physical gold out of the ground. As the digital currency approaches a supply growth rate that is expected to fall under the growth rate of global gold production, Bitcoin's proposition as a store of value solidifies further.

The long-term memory of volatility fluctuations is responsible for the effect of volatility clustering, where periods of a volatile market with large-amplitude fluctuations are interwoven with periods of relatively tranquil dynamics. This property has been observed in all financial markets and has also been found in cryptocurrency dynamics.

The cryptocurrency market is still relatively young and volatile compared to traditional financial markets, and it remains to be seen whether Bitcoin will continue to mature and stabilize over time. However, its market maturity is advancing, and it has already established itself as a significant player in the global financial landscape.

Bitcoin's volatility

Bitcoin is a highly volatile asset. Volatility is a measure of how much the price of a financial asset varies over time. It is calculated as the standard deviation of the last 30 days' daily percentage change in BTC price. Volatility means that an asset is risky to hold as its value may increase or decrease substantially in a short period.

Bitcoin's low volatility in early 2024 may signal a growing belief in its maturation, and historically, low volatility has preceded a price increase. This is because low volatility occurs when selling energy is low, and investor sentiment is apathetic or demoralised, creating a price bottom from which the price can only rise.

While Bitcoin is a volatile asset, its volatility is not unprecedented. Gold, for example, experienced high volatility when the US came off the gold standard in the 1970s.

Bitcoin's promise of decentralisation

Bitcoin's recent surge has sparked questions about whether it's too late to invest. The answer might surprise you: it might never be "too late" to buy Bitcoin.

Bitcoin is a decentralised monetary system. It operates without a central authority to monitor, verify, and record transactions. Instead, it depends on a peer-to-peer network to perform these functions. When a buyer uses Bitcoin to pay for a transaction, the record is transparent and is viewed and verified by all participants in the network.

Some participants, referred to as miners, verify the transactions and compete to add them to the public ledger, known as the blockchain. The blockchain is a series of blocks, each containing a set of transactions. It is a public ledger or database that records and provides the details of all valid transactions.

The essence of Bitcoin's decentralisation feature hinges on healthy competition among many miners. The system requires a large number of miners to participate so that there is trust in the verification and bookkeeping functions. Decentralisation offers certain advantages, such as avoiding concentrations of power, promoting the availability and resilience of the system, and offering greater privacy for users.

However, the sustainability of decentralisation in the Bitcoin system has been questioned. Some studies suggest that economic forces may push Bitcoin towards centralisation, with a few large-sized miners dominating the system. The interplay of operating costs and capital costs also plays a role in the potential evolution towards centralisation.

Decentralised governance, a promise of blockchain technology, comes at a cost. It is not a necessary feature and needs to be enacted. The benefits of decentralised governance may not always outweigh the associated costs, and protocol developers may work more effectively on their own or in small teams.

In conclusion, while Bitcoin promises decentralisation, the reality is more complex. The system relies on decentralisation to maintain trust and security, but economic and competitive factors may lead to centralisation. The future of Bitcoin's value and the role of decentralisation remain subjects of debate and further research.

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