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If you have been on another planet for the past decade, you would have been one of the rare people in the world that had not heard of the phenomenon of cryptocurrencies and, more importantly, the success of the leader of the pack, Bitcoin (BTC). In April of 2011, a full ten years ago, one BTC token could be had for $1. Since then it’s value has been as high as $60,000. Equity investors over the long-haul hope to attain a multiple of “10X”. Such a return is considered outstanding. Bitcoin has achieved a multiple of “60,000X”.
Since December of 2020, BTC has already tripled in value, and the slope of its pricing history, as depicted in the chart below, suggests that better days are yet to come. What is it about cryptos and more especially Bitcoin that has attracted investors far and wide, including both individuals, as well as the institutional investment arena? The original intention of Bitcoin and several of its brethren in the Crypto-verse was to be another vehicle used for the purchase of goods and services primarily on the Internet. Investors, however, soon found BTC to be an excellent hedge against deflating fiat currencies.
Why buy Bitcoin?
Bitcoin has evolved dramatically over its first decade, both as a medium of exchange and a storehouse of value. Bitcoin is a decentralized cryptocurrency that operates upon a revolutionary blockchain technology platform. This unique ledger system is public in nature in that everyone can view a transaction record, but they cannot see the identity of the owners at each point of exchange. The addresses consist of a lengthy cryptographic set of digits that can only be updated by a consensus of a majority of nodes on the network, a property that guarantees security and thwarts any attempt at compromise.
In his original whitepaper, Satoshi Nakamoto, the accredited creator of Bitcoin, noted the need for “an electronic payment system based on cryptographic proof instead of trust”. The decentralized nature of the blockchain platform obviates the need for an intermediary for each transfer of value, a characteristic that can be used in many real-world situations in today’s global economy. To date, there are over 9,000 various crypto token programs based upon blockchain applications.
Bitcoin does not own a patent on blockchain technology, but its popularity has led to greater confirmation that Bitcoin and many of its crypto brethren are here to stay, despite many attempts from government and law enforcement officials to shut them down. The anonymity aspect of the blockchain has aided and abetted the criminal element of our society, but standards continue to be adopted to mitigate this hidden trail of sorts.
Analysts and major investment groups began in 2020 to recommend the ownership of Bitcoin to their respective clients, based upon the theory that governments across the globe would use quantitative easing programs to bolster their economies over the damage caused by the Covid-19 pandemic. This unexpected support from Wall Street is one of the reasons proffered for the recent good fortunes of BTC price trends.
Is Bitcoin still a good investment for the future? The general assessment of the investment community is that Bitcoin will be worth a good deal more in five years than it is today, the basic definition of an appreciable asset that meets a buy-and-hold investment strategy. Bitcoin, however, is not without its critics. A few well-respected economists insist that BTC is a “bubble” asset, capable of deflating to zero in value.
As for those that disagree with these naysayers, there are five reasons generally given for holding Bitcoin in your portfolio at an amount appropriate for the risk involved:
- Increased acceptance: As Bitcoin becomes more known as a medium of exchange and as a viable investment for the long-term, its adoption by individuals and merchant establishments only solidifies its position in the marketplace. As of the end of 2020, there were over one million active Bitcoin addresses, having nearly doubled over the last twelve months. The success of other access onramps like Square and its CashApp and PayPal have also increased momentum for BTC. Buying BTC is one thing, but PayPal is also opening its base of 26 million merchants for accepting BTC for online purchases.
- Debasement of fiat currencies: As unfortunate as the Covid crisis has been, it has played into the strength of Bitcoin’s value proposition. Bitcoin actually came into being after the Financial Crisis of 2008. Governments across the globe expanded their national money supplies to address economic needs, thereby diluting the value of their fiat currencies in the process. Bitcoin soon took on the quality of a form of Gold on the Internet. As fiats were debased, the demand for BTC rose and with it, the price of one BTC also rose exponentially. Fast forward to today, and we have the identical situation.
- Scarcity: Basic supply and demand dynamics also suggest brighter prospects for Bitcoin in future. There are presently 18.7 million BTC in circulation, and there is an upper limit set at 21 million for all time. At each “halving” event every four years, one half of the remainder is released for mining, a process that could extend for 30 more years. Will the limit ever be raised? Yes, there is always the possibility that Bitcoin’s limit protocol could be changed, but a majority of holders would have to approve the change. Based on Stock-to-Flow models, Bitcoin’s scarcity currently rivals that of Gold and can only increase over time.
- Growing institutional support: While major Wall Street interests have invested in Bitcoin and other cryptos on their own account, they have been reluctant to publicly endorse BTC as a worthy investment for their clients, whether individuals, pension funds, or insurance companies. The Covid pandemic has changed their public posturing. Citibank is just one example. It recently reported to its institutional client base that “there are marked similarities between the 1970s gold market and Bitcoin today”. If and when a Bitcoin Exchange-Traded Fund (ETF) is approved for the US market, another surge could occur.
- History of price cycle recoveries: The critics, who have asserted that Bitcoin is a “ponzi scheme”, have also stated that trust will soon dissipate and that one BTC will be worthless. A market cap of $1.8tn suggests a different outcome. Even more supportive is the fact that Bitcoin has withstood several major price cycles and recovered to achieve higher highs and higher lows, the sign of a healthy long-term trend. In the minds of its true supporters, Bitcoin has replaced Gold as the ultimate hedge.
Step by step Bitcoin buying guide
Times have changed since the early days when the only way to access the BTC market was through a cryptocurrency exchange. An online broker, such as eToro.com, has now made it very easy via its trading platform to buy crypto tokens and keep them safe in a digital crypto wallet.
For eToro.com, simply 3 steps will get you up and running:
Step 1: The first screen on the Home Page will feature a number of ways to invest. Step 1 is to press the green “Join Now” button to initiate the account set up protocol. You will be asked for personal information, required by law, and to complete a profile of what your intent will be going forward.
Step 2: Once you have completed these entries and received approval, you will be returned to your personal page, which lists topics on the left of the page. In order to trade markets, you will need to fund your account. After selecting the blue “Deposit Funds”, the website will present a variety of payment methods for funding your account, which may include a bank transfer, a credit card, or a direct link to your bank account. After executing a funding order, you are ready to purchase bitcoins.
Step 3: Lastly, BTC may already be included on your Trade Markets or Watchlist screen. Otherwise, enter BTC in the Search section at the top of the page. We present here BTC as a lead entry on “My Watchlist”, along with other helpful information. Click the green “BUY” button, and you are on your way to investing or trading bitcoins.
As of April 2024, Bitcoin continues to dominate the cryptocurrency market. It commands approximately 58% of the total market share, which now consists of over 10,000 different token products. Bitcoin’s market capitalization has surged to $2.5 trillion, reflecting its continued growth and adoption. Ethereum (ETH) remains its closest competitor, albeit with a reduced market share of around 10%.
BTC has weathered numerous challenges and undergone significant price cycles throughout its history. Despite this volatility, it has demonstrated a degree of stability in recent years, instilling confidence in analysts and investors regarding its prospects. However, it’s essential to recognise that investing in cryptocurrencies carries substantial risk. It’s advisable only to invest capital you can afford to lose and avoid overexposure to cryptocurrencies in your overall investment portfolio.
