The Future Of Money: Why Invest In Bitcoins?

Bitcoin is a hot topic in the financial world, and with its soaring value and potential for high returns, it's no wonder that many investors are enticed by its promises. However, it's important to understand the potential benefits and risks before deciding whether it's the right investment for you.

- Bitcoin is a decentralised digital currency with no central authority controlling it. It uses blockchain technology and encryption to verify transactions and maintain the protocol, giving it an advantage over traditional fiat currencies.

- Bitcoin has a limited supply of 21 million, which creates scarcity and potentially gives it value. This scarcity, combined with increasing demand, can drive up the price.

- Bitcoin transactions are quick, cheap, and easy to complete internationally compared to traditional currency transactions.

- Bitcoin is highly liquid and has low fees, making it potentially profitable for short-term investments.

- Bitcoin is not subject to hyperinflation like traditional currencies because it undergoes predictable inflation at a halved rate every four years.

- The frequent price fluctuations and volatility in Bitcoin present opportunities for significant profits.

However, it's important to consider the risks as well:

- Bitcoin is highly volatile, and its price can fluctuate drastically.

- There is a threat of hacking, and while Bitcoin's blockchain has never been hacked, individuals can still be compromised if they give out sensitive information.

- Bitcoin is not widely regulated, and its price is affected by scams and deep price plunges.

- Some governments have warned against cryptocurrency investing, and China has even banned initial coin offerings and cryptocurrency exchanges.

Ultimately, the decision to invest in Bitcoin depends on your risk appetite and perspective on the future of digital currencies. It is crucial to do your research and understand the market before considering any investment.

Bitcoin's value proposition is suited to the macro climate

Bitcoin's value proposition is well-suited to the macro climate. Born out of the Global Financial Crisis of 2009, Bitcoin was created as a possible solution to the problems of that time: bank failures, government bailouts, and quantitative easing.

Fast forward to today, and we are seeing a new financial crisis with more bailouts, more wobbly banks, and a monetary establishment trapped between interest rate hikes, runaway inflation, and the temptation of money printing. With the Fed likely to continue printing money to ensure deposit liquidity, there is a real possibility of hyperinflation.

Bitcoin, with its decentralised and hyper-portable nature, offers a way to protect wealth in the midst of these economic storms. It is not beholden to the vulnerabilities of national currencies, and international transactions can be completed quickly and cheaply. As such, it has been positioned as an emerging safe-haven strategy.

Additionally, with its scarcity and controlled inflation, Bitcoin has the potential to store value and act as "digital gold". The halving of Bitcoin's block reward every four years reduces the supply of new Bitcoins, leading to increased scarcity and potentially driving up demand and price.

The current macro climate, therefore, presents an ideal opportunity for Bitcoin to shine as a valuable investment asset.

Bitcoin is still in the buy zone

Bitcoin is a good investment for those who can afford to take on the risk. It is a highly liquid investment asset that can be easily traded for cash or other assets, with low fees and high liquidity, making it potentially profitable for short-term investments.

Scarcity and network effect

Bitcoin is a decentralised, open-source peer-to-peer software monetary system. It is not controlled by a singular authority and instead uses blockchain technology to verify transactions and maintain the protocol. Bitcoin's protocol limits it to 21 million coins in total, giving it scarcity and therefore potential value.

Demand will keep prices growing

The more people that use Bitcoin, the higher its price in the market. As demand and value increase, the price of Bitcoin will also increase. This is a beneficial aspect of Bitcoin for investors.

Bitcoin is the backbone of almost all other cryptocurrencies

Bitcoin has the advantage of being the first player in the market and has proven to be secure and reliable. It has won the trust of governments worldwide because of its high-security features and honesty.

The regulatory landscape is improving

While Bitcoin's position as a safe haven is still up for debate, its high-risk nature is well known. In 2014, the US Internal Revenue Service ruled that the fluctuating value of Bitcoin could trigger capital gains taxes for consumers. However, as Bitcoin has gained popularity with investors, government regulatory agencies such as the US Securities and Exchange Commission (SEC) have made moves to curb that propensity for risk.

Bitcoin is the best-performing asset on a 3-year horizon or more

Bitcoin's strong performance has not escaped the notice of Wall Street analysts, investors and companies. On a long-term time horizon, it is one of the best-performing assets.

On a long timeframe, Bitcoin is the best-performing asset

Bitcoin has been the best-performing asset of the last decade, with a return on investment that is ten times greater than that of the NASDAQ 100. In the period between 2011 and 2021, Bitcoin's cumulative gains exceeded 2,000,000%. This is a stark contrast to the US Large Caps and NASDAQ 100, which recorded returns of 3,282% and 541%, respectively.

Bitcoin's annualized return during this period was 230%, which is ten times that of the NASDAQ 100, the second-best performing asset class of the last decade. In comparison, US Large Caps recorded an annualized return of 14%, while gold recorded a return of 1.5%.

Bitcoin's high volatility is well-known, but its potential for high returns cannot be denied. For instance, a Finbold report from February 2022 showed that Bitcoin outperformed the top six tech stocks over a 30-day period, with an average ROI of 12.24%.

If you had invested $100 in Netflix a decade ago, you would have seen a return of about $4,011. However, if you had invested that same amount in Bitcoin, your return would have been over $18 million.

Bitcoin's performance compared to gold is also noteworthy. While gold is known for holding its value over long periods, Bitcoin has outpaced it in terms of ROI. In 2021, Bitcoin finished the year up 70%, while gold was down 7%. If you had invested $1 in Bitcoin when it first came on the market over 12 years ago, you would have seen a return of approximately $6.258 million. On the other hand, investing the same amount in gold would have yielded a return of only $1.69.

Bitcoin's performance compared to real estate is also impressive. While real estate is a tangible asset with intrinsic value, it requires significant initial investment and continual maintenance. In contrast, Bitcoin costs significantly less to invest in and does not come with the same maintenance requirements. Over the last five years, investing in Bitcoin has yielded higher returns than real estate. For example, the Manhattan market has seen a home price drop of 31%, resulting in potential losses of around $450,000 for those looking to sell. On the other hand, investing in Bitcoin during this period would have resulted in a total return of 3,112% and an ending value of approximately $1,927,664.

Bitcoin is also becoming more popular as a transactional currency, with more companies accepting it as a form of payment. If you are willing to hold on to your Bitcoin and weather the market fluctuations, you can see much bigger returns than with real estate, stocks, or gold combined, as the past has shown.

While Bitcoin is a volatile asset, its high return rates and increasing popularity make it a lucrative investment opportunity. With only a small amount of money needed to get started, now is the best time to invest in Bitcoin.

A Bitcoin Spot ETF may be approved

Enhanced Liquidity and Stability:

Bitcoin spot ETFs can increase the liquidity of the Bitcoin market by providing more buyers and sellers. This enhanced liquidity can lead to more stable prices, reducing volatility and making Bitcoin more attractive to ordinary investors.

Accessibility and Convenience:

Spot Bitcoin ETFs provide a more accessible and familiar way for investors to gain exposure to Bitcoin. They can invest through their existing brokerage accounts, eliminating the need to set up accounts on crypto exchanges. This lowers the barriers to entry into the crypto market, making it more convenient for those accustomed to traditional investments.

Regulatory Oversight and Tax Benefits:

Spot Bitcoin ETFs are subject to standardized regulations, providing transparency and investor protection. Additionally, in certain jurisdictions, these ETFs may offer tax benefits compared to holding cryptocurrencies directly, as the tax treatment of ETFs is long-established and well-understood.

Increased Adoption and Market Validation:

The approval of spot Bitcoin ETFs is likely to attract significant investment inflows from mainstream investors, including those with 401(k)s and IRAs. This increased demand and capital inflow could boost Bitcoin prices and further validate Bitcoin's legitimacy in the mainstream financial system.

Trading Activity and Active Speculation:

Spot Bitcoin ETFs can create more avenues for active trading of Bitcoin by hedge funds, day traders, and speculators. This could lead to greater trading volume and volatility, providing more opportunities for short-term gains.

However, it is important to remember that investing in spot Bitcoin ETFs still carries risks, including the volatility of Bitcoin prices, regulatory uncertainty, and security risks associated with custodianship. These ETFs also charge management fees, which can diminish returns over time.

Overall, the approval of spot Bitcoin ETFs has the potential to positively impact the cryptocurrency market, making it more accessible, stable, and attractive to a wider range of investors.

Bitcoin's authority

Bitcoin is the first and most well-known cryptocurrency, leading the pack as the most widely used digital currency. It is a decentralised, open-source, peer-to-peer monetary system invented by an anonymous person or group named Satoshi Nakamoto. It has no central authority and instead uses blockchain technology to verify transactions.

Bitcoin's position as a safe-haven investment is still up for debate, and it has faced resistance from governments and regulators due to its high-risk nature. However, it has gained popularity with investors and is now considered a legitimate investment asset. Its price has soared to incredible heights, although it has also experienced major lows and is subject to volatility.

Bitcoin's value proposition is its decentralisation and the fact that it is not beholden to the vulnerabilities of national currencies. It offers a way to store and transmit value that is verifiable and scarce, and it has particular appeal in the current climate of bank failures, government bailouts, and quantitative easing.

Scarcity and Network Effect

Bitcoin has a limited supply of 21 million coins in total, giving it scarcity and therefore potentially giving it value. This scarcity aspect is often cited as one of the reasons for Bitcoin’s potential to store value and act as "digital gold".

Bitcoin also benefits from a strong network effect, mainly derived from its first-mover advantage, which has led to a security advantage. It has the best security and leading adoption of all cryptocurrencies, and it has retained substantial market share against thousands of competitors.

The Halving Cycle

Bitcoin's supply is also affected by halving events, which occur approximately every four years and reduce the number of new coins produced every 10 minutes by half. This reduction in supply, along with constant or growing demand, tends to push the price up.

Bitcoin has historically performed extremely well during the 12-18 months after launch and after the first two halving events.

Regulatory Landscape

Bitcoin's regulatory landscape is still evolving, with US government agencies such as the SEC seeking to curb the propensity for risk in this market. However, some states in the US have taken a pro-crypto stance, and Japan officially recognised bitcoin as a method of payment in 2017.

Market Outlook

The outlook for the bitcoin market remains bullish, with growing interest from institutional investors. Wallet Investor forecasts that the bitcoin price will average US$52,322.10 by the end of 2021, rising further in 2022 to pass its record high and reaching US$79,090. Digitalcoin predicts a price of US$184,933.09 by 2028.

However, bitcoin does have its naysayers, including Warren Buffet, who has said he would never own one single bitcoin.

Frequently asked questions