The renewed hype behind cryptocurrency is upon us for another season. Is this a real investment opportunity or a gamble on hype with low chances of winning?
I have been following Bitcoin (BTC) since 2013, but my entrance into cryptocurrency investing started in November 2017. I had wanted to buy BTC prior to 2017 but found the channels to do so with CAD were riskier than a BTC investment itself. When I finally entered the realm, I brought a rather traditional long term investment thesis, I had no intention to cash out any crypto into fiat until 2025. However, I did have plans to trade and accumulate other Alt coins – the moniker used grouping together all cryptocurrencies that are not BTC. I will share my crypto journey in a separate post, this post is about looking to the future.
Fast forward to January 2024 and there have been 2 bull/bear cycles. There are multiple factors that influence these cycles. A BTC Maxi they would tell you these cycles are solely due to the Halving. This event gives BTC a deflationary nature by halving the Bitcoin mining rewards every ~4 years. This decreases the rate of newly available BTC until all 21 million BTC are in circulation, estimated to be in the year 2140. The charts that follow BTC price clearly show a bull/bear cycle coinciding with each halving event since inception.
Some will point to the bull/bear cycles being in step with the US presidential election which can lead to increase in economic liquidity. The pandemic also caused a significant shift in global liquidity coinciding with a bull run. The reality is increases in economic liquidity no matter the cause can lead to an increase in Crypto prices. (This is no different than bull/bear cycles in traditional markets)
We are at the beginning of another bull run and many are wondering if they should take the leap into crypto.
My opinion: Yes it is worth the investment. Why? Let’s discuss a few important reasons why.
A) Large US Financial Institutions entering the market.
We will start here because this is the reason the average investor has recently heard more about investing in BTC. There have been applications from 11 major investment firms to establish a BTC ETF in the US. (BTC ETFs already exist in other countries including Canada). We are talking trillions of USD in assets under the control by these huge US firms, and now they feel BTC is a worthwhile investment. This will validate to millions of investors that BTC is now a legitimate investment. This exposure will provide a significant push towards mainstream adoption. Having these large players heavily invested may even push BTC into the too big to fail category. I won’t discuss how buying/selling pressure created by these firms affects BTC price because that will mainly affect short term price volatility around the ETF release date.
B) Cryptocurrencies now have a working product
During the past two crypto bull runs the prices of these assets were based mostly on speculation and potential. Ethereum was the first blockchain to provide a functioning platform for decentralized finance (DeFi), Tokenization of Assets and Non-Fungible Tokens (NFTs). Ethereum had released those functions during the second bull run, but it was saddled with scaling issues, network congestion and exorbitant fees.
Fast forward to today and there are multiple blockchains with functional networks that have begun to correct these issues. Don’t lose sight of the early stages of development that this industry is still in, but now we are able to witness the potential of these networks and how they can provide significant improvements over established systems especially in the developing world.
C) BTC as a digital decentralized store of value
Society is headed towards more technology dependent systems. Cash is being replaced by digital payments at a rapid rate. It’s a matter of time until gold will be replaced by a digital store of value. Enter BTC as digital gold. This is a point of contention because a BTC Maxi will tell you that only using BTC as a store of value is a waste of its vast potential. Meanwhile a traditional investor will tell you that an effective store of value can’t have a volatile price. Both points may be accurate today, but they don’t necessarily reflect what the future will bring.
The BTC protocol provides a predictable consistent influx of new circulating BTC. BTC supply cannot be altered to manipulate the price. These are fundamental features that an effective store of value must have. After a period of volatility the price of BTC will begin to stabilize then it can provide a digital store of value equally as effective as gold. The biggest threat to BTC as a store of value is BTC unlocking its full potential by providing the ability to efficiently settle day to day transactions.
D) This is Cryptocurrency’s Dotcom Moment
During the Dotcom bubble anything that made claim to be internet tech saw its value skyrocket. Was it a bubble, yes. Are the most valuable companies in the world today a product of that time period, a resounding yes! We are going to see nearly every crypto and crypto related business increase in value as this technology continues to grow. There is going to be a massive capital influx into this sector creating unrealistic valuations. This is how an investor can make huge gains in a short period of time. The key is to remember the Dotcom bubble – 99.9% of these cryptocurrencies will fail and have their value go to $0.
But that is exactly what this post is about, is cryptocurrency a BUY right now? Without a doubt that answer is yes.
Follow for further posts where I will share some insights into safely entering the realm of crypto investing.
Disclaimer: This content is for informational purposes only and should not be construed as financial advice. The views expressed are those of the author, who is not liable for any losses or damages arising from any actions taken based on the information provided in this blog. Investing and trading involve risk; you are solely responsible for your decisions.
Great post and background on the investment thesis. Look forward to learning more about crypto and its legitimacy.
Here’s a question that you likely will address in a later post: What is your actual motivation for purchasing crypto — are you a Bitcoin Maxi who sees its use case as the main draw, do you consider it a store of value, or do you see it as a trade to make profit (eventually cashing out in fiat)?
Cheers for the post!
MB
All of the above – but not equally weighted. I am not a strong believer in the Bitcoin Maxi ethos, but it certainly does make some sense given the current state of global finance. I will discuss the latter two points more in future posts.