London, UK, 6 Feb, 2021 (Globe Newswire) — $1 invested ten years ago would be worth over $40,000 today. This is not a stock, nor a precious metal; it is bitcoin the first cryptocurrency. Bitcoin is regarded as the best returning asset of the decade. Bitcoin has outshined every investment including Stocks, Real Estate, Oil, Gold, Commodities and Corporate Bonds.
Bitcoin was introduced in 2009 by someone under the name Satoshi Nakomoto. As of early 2021, Satoshi Naxkomoto is the 18th wealthiest person in the world above Jack Ma and below Micheal Bloomberg. However, the fascinating part is nobody knows who he/she/they are as once Bitcoin was released to the world they disappeared off the face of the earth. Although mysterious, this is arguably the most important thing he did (obviously second to creating bitcoin).
As people learn about bitcoin and the emerging industry that surrounds the currency, more investors, both retail and institutional, observe whether this new currency/asset class/thing is worth investing into. Bitcoin is arguably the first market where retail investors have beaten wall street with Goldman Sachs announcing that they are scrambling to catch up on bitcoin. This trend seems prominent with many large institutional investors. So the question many are asking, should I invest into bitcoin? Let’s explore this question.
Is Bitcoin a good investment?
The first thing to consider when looking at bitcoin is your level of risk tolerance. In 2020 alone Bitcoin’s price went from $7000 in January, dropped to a low of $3700 during the peak of pandemic during March and finished the year just under $29,000. Therefore, investing in bitcoin is an emotional roller coaster, so you better be prepared to see your portfolio drop 50% one day in order to experience a 10x rise the next.
If we compare bitcoin’s price since its creation till now, we can see that bitcoins as an investment has always increased over the longer term. Although some years the price decreases, since inception bitcoin has always breached its previous all-time-high within a few years. The market goes in cycles to the upside and downside, but is always trending up. So what is Bitcoin? Why the hype? It’s best to begin by understanding how bitcoin is so much different from any technology or asset that the world has ever seen. The key buzzword that i’m sure you’ve heard if you’ve read or listened to any news article on bitcoin is decentralisation. This simply means removing third-parties (or middlemen) from a transaction. Bitcoin is completely detached to a traditional payment network or bank, where sending a transaction often involves multiple participants to get that transaction sent from one person to another. Whereas, Bitcoin allows you to send money directly to another person, without the need for a bank or other financial institution to help facilitate that trade. The result of this means that transactions are both faster and cheaper to send as you don’t have a third-party taking a fee or waiting on other third-parties to connect too. To allow the transactions to happen, many people across the internet give up their computing power to validate the transactions, just as a bank would.
Now you understand how the bitcoin network is run and how transactions are sent, what gives it value? One of the things that Satoshi ensured was the supply of Bitcoin would only ever be 21 million. Meaning that once the 21 millionth bitcoin is mined, there will be no more Bitcoin left to mine. There have currently been 18.5 million bitcoin mined, meaning there is 2.5 million left to be mined. Bitcoins are mined by computers solving complex algorithmic puzzles that progressively get more challenging over time, with the idea that the last bitcoin won’t be mined until 2140. So with such limited supply and an increasing level of interest and demand, basic economics implies that the price will continue to rise as long as demand stays the same/increases.
So now you can understand a bit about what bitcoin is and how it works. It is crucial to examine the external market and what is happening worldwide to increase the value of bitcoin further. What differs today from saying the 2017 bull market or the years prior is that the market has begun to mature and is being taken more seriously by traditional financial markets. For example, PayPal has announced that they will allow their 50 million customers to buy, sell and hold cryptocurrency on their platform. Coinbase, the largest cryptocurrency exchange, has filed to go public. This will enable financial institutions to gain exposure to the bitcoin market without needing to hold bitcoin directly.
The covid-19 pandemic has meant that as a society we are less reliant on physical cash and most transactions that are made are done digitally. China has announced that they have released their central bank digital currency, which is further accelerating the transition to a cashless society.
One of the biggest responses to deal with the effect of the pandemic on people has been the economic stimulus given to people and businesses. For example the USA, the largest economy in the world, has given rounds of stimulus checks directly to the population. The means in which central banks and governments have afforded this is through the printing of money. They do this through the Federal Reserve who print the money and add it to their balance sheet. The Fed’s balance sheet effectively shows all the money that has been magically printed from the United states. As of 2020 it grew from $4 trillion to $7 trillion, meaning that all the stimulus and money given to the people was at the cost of $3 trillion dollars. This results in the value of the dollar decreasing and inflation increasing. During the first round of the stimulus checks in March 2020, some people that were given the $1200 invested it into bitcoin. As of early 2021 that $1200 is worth over $6000, a 400% increase in value. So not only is the US dollar going down in value, the price of bitcoin is increasing.
There has been much speculation that the ‘bitcoins bubble’ would burst, but time after time many have been proved wrong even with the global pandemic. In 2013 Cyprus went into a banking crisis and the government was taxing its citizen’s hard-earned money through what they called a one time levey to anyone that had over 100,000 euros in their account. This was due to high levels of uncontrollable debt from the country. At the time the country’s debt-to-GDP ratio, a metric used to compare the debt levels to a country’s output, was at 104%. The World Bank has stated that any country’s debt-to-GDP above 77% means they are at a point of no return and won’t be able to sustainably manage that debt. For reference
the UK’s debt-to-GDP ratio is 85% and the US’s level is 98.2%.
So should you invest into bitcoin? Bitcoin isn’t for the cautious investor. You need to be prepared to see your investment portfolio fluctuate heavily to the upside as well as the downside. If you want to experience 1000% gains you need to be able to also withstand 50% drops.
Bitcoin is a new asset class and has been around just over a decade. That being said it is the best performing asset of the last decade. It may be a speculative investment, but countries around the globe are printing more money, levels of debt are at the highest ever levels, inflation is rising and uncertainty is at an all time high. The trust in central governments and agencies around the world are at an all time low. It is therefore understandable that people would put their faith in money that was detached from these central institutions and could act independently without a central bank deciding it wanted to print a few trillion dollars more of it. If you do decide to invest, only allocate a small amount of money into bitcoin, and ensure it is money you can afford to lose.
So bitcoin may not be for everyone but for those who can look deeper and understand what is going on around the world, can begin to understand why we need bitcoin. Not everyone will get it but that’s fine. To leave you with the words of Satoshi “If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.”
Find out more at Bitcoin Simplified website https://bitcoinsimplified.live, and for any further information contact directly through the email address: [email protected]
Company: Bitcoin Simplified
Email: [email protected]