What’s up rollers?
I made my first bitcoin purchase on 1/24, just about one month ago at around $33,000. I’ve been slowly adding to my position with some of the extra money I had in my brokerage account to a total of $8,900 invested into the cryptocurrency. As of 2/21/21, My bitcoin balance totals $12,498.75 a gain of just under $3,600 on my cash invested.
I have a pretty well paying job and I actually made more money in (on-paper) bitcoin gains during this time then I did in my W-2 job.
bitcoin has taken a crazy ride up in the last few weeks, moving from a price of $33,533.10 per bitcoin just at the beginning of February to just about $57,500 in the time that I’m writing this just under three weeks later.
That’s an insane upswing of over 70% in just a few weeks. By comparison, a good annual expected rate of return for the S&P 500 index of stocks is in the single digits. Conservative investors wait years to see this kind of growth. Will this meteoric rise up continue, or will bitcoin crash and burn?
In this article, I’m going to give you my take on bitcoin and cryptocurrencies in general. Hint hint… I’m very bullish.
Why is bitcoin valuable?
As opposed to using a middleman like a bank to facilitate transactions between two people, bitcoin cuts out the middleman by enabling peer to peer facilitation of value. Bitcoin utilizes what’s called blockchain technology, which is essentially a decentralized ledger/list of transactions that is available and visible for all of its users.
The blockchain technology records all transaction information in a way that makes it essentially impossible to change, hack, or cheat the system. In fact, since bitcoin’s founding and mainstream adoption, there have been no examples of the system being cheated.
This, combined with bitcoin’s ability to store value that is not tied to any government makes it appeal to people who want more control over their assets. Cash is controlled by federal institutions and banks, while bitcoin is controlled by its owner.
The bullish case for bitcoin:
Whenever investors analyze the prospects for stocks in the stock market, they look at a couple of things. They look at the health of the business behind the stock – is it growing? Does it have a product that solves a big need in the market? These things contribute to a company making profits and increasing revenue. In addition, many analysts look at the price of the stock. Perhaps people know that a company is hot stuff, and investors have bid up the price of the stock in anticipation of positive results.
Along a stock’s ride up and down, good news about the stock tends to make a stock price go up and bad news makes the price fall. Think of this “news” as a catalyst to the stock. It propels it either upward or downward. I want to talk about some future catalysts for bitcoin, both positive and negative.
There are many things that could happen that would drive the price of bitcoin up. Here are a few of them.
- Companies adopting bitcoin in large numbers: According to a study by ARK Invest, if all of the companies in the S&P 500 invested just 1% of their cash reserves in bitcoin, the price would go up by $40,000. If these companies invested 10% of their cash on hand into bitcoin, that would push the price up to $400,000 per coin. We recently saw Tesla commit to invest $1.5 Billion (8%) of their cash reserves into bitcoin, and many companies could follow.
- Inclusion in retirement funds and brokerage investment options: Currently, there are zero ETFs or mutual funds that allow you to invest in a fund that holds bitcoin directly. In fact, most traditional brokerages don’t even allow you the option to invest in bitcoin. As bitcoin gains popularity, it will certainly become easier to purchase and will be included in investment funds as investors flock to the potential of high returns. Easier access to purchase bitcoin will drive the price up.
- Positive regulatory environment: One of the biggest risks in owning bitcoin is that it’s a currency that has no direct ties to a government. My view is – every day that our government does not take action to negatively regulate or limit bitcoin, the harder it becomes to do so. For example, If companies begin to adopt bitcoin as cash reserves like Tesla, any action that our government takes to regulate or negatively impact the price of bitcoin actually hurts the businesses that hold the asset. As more companies, investment companies and retail investors begin to pile into bitcoin, any negative regulatory action will hurt the economy. Hurting jobs and the economy does not go down well the public. Time is on our side here.
- Inflation comes in higher than expected: With the federal reserve printing a ton of money to keep Americans stable during times of uncertainty, many have speculated about the risk of inflation. While we have yet to see if inflation worries will come to fruition, any inclination of inflation should lead to an increase in the price of bitcoin. Bitcoin’s supply is finite so it has little risk of inflation, while paper money can be printed at will. Think of bitcoin as a digital version of gold and an inflation hedge.
- Larger adoption and legitimacy of blockchain technology: With or without bitcoin, blockchain technology is here to stay. The blockchain concept allows for the erasure of a middleman in a safe and secure way. Both the US government and many financial institutions and banks are hard at work contemplating how they can take advantage of blockchain technology to facilitate faster and more secure transactions. As this technology becomes more widespread, the mystery it holds now with bitcoin will slowly disappear.
There are risks to bitcoin and cryptocurrency, and I want to make sure to highlight a few of the big ones here:
- Negative regulatory environment: The US government has traditionally not taken kindly to efforts to circumvent its currency and its legitimacy to print money. While I mentioned above that cracking down on bitcoin would negatively effect the economy, the argument could be made that a strong bitcoin could also negatively affect the US’ ability to handle and regulate its economy via monetary and fiscal policy, hurting the economy on a macro level. Bitcoin could be classified as more of an asset like gold as opposed to a currency used for trading, but there is a risk of a government crackdown to maintain the legitimacy of the US dollar.
- Bitcoin technology malfunction: While this has not happened yet, if there were ever to be a glitch, error, or fraud found in the blockchain, the trust of the system will definitely collapse along with the price of the asset.
Additional benefits of bitcoin:
There will never be more than 21 million bitcoin in existence. This is because of bitcoin’s pre-programmed way to maintain value by halving the amount of bitcoin that can be created every four years. Unlike other fiat currencies of the world, whose values rely on the trust of the associated governments, bitcoin’s supply will forever be limited.
In addition, if you invest in bitcoin through a reputable crypto brokerage, many of these companies will offer you interest if you provide them the ability to access your bitcoin. This is called a “hot wallet” and I suggest you look into this concept more if you are curious about it. I have a hot wallet with Gemini, and I earn 3.2% annually in interest, paid in bitcoin. How often do you see a hyper-growth stock on the market that ALSO pays a 3.2% dividend?!?
If you want to continue your research into bitcoin and blockchain technologies on your own, here are some resources I found helpful.
- Understanding how bitcoin and the blockchain works: https://www.youtube.com/watch?v=bBC-nXj3Ng4
- Step by step how to set up a crypto brokerage account and invest safely: https://www.youtube.com/watch?v=fAmdC64KKdM&t=949s
Why did I take the time to write all of this? Because I genuinely think that now is the time to invest in bitcoin and other cryptocurrencies before mainstream adoption, and that doing so will lead you to a lot of investing success. Please keep in mind that bitcoin is extremely volatile, but I believe that long-term, the price will rise consistently and significantly over the next few years.
As I wrap up this post, I just want to remind folks that I am not a financial advisor, so please treat the purpose of this post as entertainment, and make sure you consult a financial advisor if you have investment questions. I am bullish on bitcoin, but feel free to take this information at face value and do what you will with it.
If you found this useful, please consider using my referral link to sign up with the crypto trading platform that I use here: gemini.com/share/d4lq7lfl.
When you trade $100 in bitcoin you’ll get $10 deposited into your account. Gemini is a big and trustworthy player in the crypto game, and has over $10 Billion of crypto assets under management.
Take care and happy investing!