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Crypto Finance

Should You Buy Bitcoin Now For Your Investment?

Last Update: 2021-12-17

Buy Bitcoin?

Bitcoin is a peer-to-peer electronic cash system launched in 2009 as a solution to the existing financial system's flaws. Bitcoin was worth $0 at the time, and only a few crypto enthusiasts mined them as a collectible. People began to see Bitcoin as a currency that could be used to buy products and services after the Bitcoin Pizza Transaction in 2010.

By 2013, Bitcoin had grown in popularity and had surpassed $1,000 in value. The value of Bitcoin increased dramatically to $19,000 after the second Bitcoin Halving case. However, there was a small blip in its value after 2018, with the stock settling at about $5,000 at the start of 2020.

The year 2020 was unlike any other in the current century. With a global pandemic, market turmoil, countrywide lockdowns, and travel restrictions, among other things. However, one financial asset has been on the rise: Bitcoin. The price of the new-age digital currency has recovered from $8016.43 in March 2020 to about $58653.52

It's been a year-long rally since then, punctuated by two major events.

Major Bitcoin Periods:

1. The global pandemic: most people looked to bitcoin as a way to protect themselves from the looming economic crisis brought about by the spread of Covid-19. Institutional investors such as Microstrategy, Tesla, Square Corp, and others shifted their cash reserves to Bitcoin, claiming that it was a strong inflation-protected store of value.

2. The third Bitcoin halving. This occurrence occurs every four years, and the rewards for Bitcoin mining are reduced by half. In May 2020, the mining award, which was previously 12.5 BTC, was reduced to 6.25 BTC following the third halving. It greatly decreased the number of coins in circulation, resulting in increased demand. Bitcoin's value has risen steadily since October 2020, crossing $20,000 in December 2020, $40,000 in January 2021, $50,000 in February 2021, and now trading around $54,500 globally.

Can Bitcoin Reach $100,000?

The digital currency, which was once regarded as enigmatic by many, has now skyrocketed in terms of both value and popularity. It has largely become commonplace - major financial institutions such as Paypal, Visa, and JP Morgan, among others, now sell cryptocurrency services, and more retail investors are involved in buying Bitcoin than ever before.

Despite its volatility, bitcoin has seen a significant increase in value, especially in the last year. This Bitcoin rally may be attributed to two factors:

  • Better Trust
  • Global Trends

'Will it be hacked?' 'Is decentralization a truly workable solution?' 'Will halving destroy the system?' and so on were early questions about Bitcoin. Many of these questions have now been resolved after a decade. Bitcoin is based on a safe technology that never fails.

At the same time, Bitcoin is becoming more closely associated with institutional investors such as Tesla and Microstrategy. As a hedge against financial crises, most institutions are now considering converting their cash reserves into Bitcoin. Bitcoin has moved closer to $100,000 than it has to $0. The latest developments in the world of Bitcoin are evidence that it is on its way to being a mainstream asset class.

The Great Wealth Transfer on the Horizon

A few analysts believe that the crypto economy, which is currently estimated at $225 billion, would serve as another source of safe-haven assets for those seeking refuge from the financial storm. Since the Covid-19 outbreak, analysts have predicted that now is the moment for Bitcoin to shine, with reports proclaiming Bitcoin to be “the tale of the next decade.” Raoul Pal, CEO of Global Macro Investor, believes bitcoin will reach $1 million in the next five years. According to another recent article, “a new class of bitcoin millionaires may emerge” as a result of the block reward halving.

Mark Yusko, the co-founder of cryptocurrency hedge fund Morgan Creek Digital, believes that after inheriting trillions of dollars from their parents, Millennials will forever change the financial landscape. Yusko cites data from Deloitte in a recent interview with podcaster and analyst Preston Pysh, claiming that $37 trillion would be passed on to Millennials, who are early adopters of digital technology and currencies like Bitcoin and Ethereum.

Inheriting USDs & Acquiring BTCs: How ‘The Great Wealth Transfer' Will Fuel ‘The Great Bitcoin Adoption,' Kraken Intelligence, the in-house analysis team at the crypto exchange of the same name, published a new study titled “Inheriting USDs & Acquiring BTCs: How ‘The Great Wealth Transfer' Will Fuel ‘The Great Bitcoin Adoption.'”

According to the study, if American Millennials invested at least 5% of their inherited wealth in Bitcoin (BTC), the price might rise to $350,000 by 2044. From a $971 billion investment, the generational community will receive nearly $70 trillion in appreciation.

See also: Algorithmic Crypto Trading

Bitcoin adoption is accelerating

According to the company's numbers, the number of wallets has risen from 47 million to nearly 71 million in the last year.

Wallet numbers, on the other hand, are just one aspect of the story. Retail investors happy to leave their Bitcoin with a custodian such as Coinbase, Square's Cash App, or PayPal dwarf the number of people keeping BTC in their wallets.

According to Square, the Cash App delivered $1.76 billion in Bitcoin Revenue in Q4 2020, an increase of tenfold year over year. Bitcoin income in 2020 was $4.57 billion, up 9 times from the previous year. In its Q4 report, the company says it saw "more consumers accepting bitcoin on their first day of onboarding” in Q4 than ever before. Square claims that over one million customers bought bitcoin for the first time in January 2021.

PayPal has accelerated its crypto expansion, allowing all qualifying customers in the United States to buy, sell, and carry Bitcoin, Ether, Bitcoin Cash, and Litecoin, thanks to the success of the Cash App. Owing to overwhelming user demand, cryptocurrency transactions are now limited to $20,000 a week, up from the previously reported $10,000. Paypal has confirmed that Bitcoin transactions would be available on Venmo by the end of Q2 2021. Paypal's 'Checkout with Crypto' service was introduced on March 30th, allowing Paypal customers with crypto in their US accounts to pay with Bitcoin, Litecoin, Ethereum, or Bitcoin Cash at checkout.

There are plenty of on-ramps for both retail and institutional investors to chase the Bitcoin bull market's momentum, and many holders of other tokens and coins want to swap cryptocurrency for Bitcoin in exchange for their altcoins. If demand continues to increase, price fluctuations could become much more volatile, as they have in previous Bitcoin cycles.

The value proposition of Bitcoin is ideally tailored to the current macroeconomic environment.

The Global Financial Crisis of 2009 spawned Bitcoin. Bitcoin was secretly deployed into the wild against a backdrop of bank collapses, government bailouts, and quantitative easing, where it was overlooked by all but a tiny but growing community of idealists.

More bailouts, extremely low-interest rates, and accelerated quantitative easing are all part of a new financial crisis a decade later.

Individuals and businesses are becoming more conscious of Bitcoin's unique value proposition and where it fits into the larger picture. Paul Tudor Jones, an influential macro investor, said in 2020 that Bitcoin reminds him of gold's position in the 1970s. He clarified why his Tudor BVI fund has invested between 1% and 2% of its assets in Bitcoin futures contracts in a study titled The Great Monetary Inflation.

The comparison between central bank quantitative easing and an ever-increasing money supply versus Bitcoin's third halving quantitative tightening is stark. The availability of fiat currency is rapidly increasing, while the Bitcoin scarcity narrative is gaining traction.

Asset prices have been driven up to unprecedented levels as a result of money printing, which has pushed up stock, bond, and real estate prices. Even a 1% shift from other asset classes to Bitcoin will result in capital inflows greater than Bitcoin's current market capitalization.

Bitcoin appears to have been created by Satoshi Nakamoto as a potential solution to this problem. The pseudonymous founder of Bitcoin posted to an internet forum shortly after the publication of the Bitcoin white paper in 2009. "The root problem with traditional currency is all the confidence needed to make it work," he explained. The central bank must be trusted not to debase the currency, but fiat currencies have a long history of betraying that confidence. Banks must be trusted with our money to retain it and move it electronically, but they lend it out in waves of credit bubbles with just a fraction of it held in reserve."

The hard-coded cap of 21 million coins in Bitcoin's protocol creates a special digital scarcity. There is no way to raise supply if demand increases. Established Bitcoin holders who are willing to sell are the only source of supply.

Despite a market collapse and recovery, Bitcoin has still exceeded its previous all-time peak.

Finally, it never hurts to look at historical price data if you're wondering if you should buy Bitcoin. In the last ten years, Bitcoin has seen many highs and lows, and it has been declared "dead" 383 times by the mainstream media. However, it has consistently outperformed its most recent all-time highs, so there is no reason to believe it will not do so again.

Bitcoin's price peaked at $30 in mid-2011 on Mt.Gox, the most famous exchange at the time. Following a hack of the exchange, the price plummeted to just $2 in November 2011, before recovering in 2012. Mt.Gox was unable to accommodate the surge in trading volumes and was hit with a DDoS attack in April 2013, and Bitcoin briefly reached $260 before plummeting by over 50% within hours. Despite a decline in investor interest in the Bitcoin trading ecosystem, Bitcoin has only taken seven months to reclaim its previous peak.

Bitcoin reached the symbolic $1,000 mark for the first time in late 2013, but the price fell to a low of $175 in the two years that followed. Two years later, at the start of 2017, Bitcoin reached its previous all-time high of $1,000 per coin and went on to reach its iconic all-time high of $20,000 per coin in December 2017. Bitcoin was poised to surpass its most recent all-time high, which it did in December before setting a new all-time high of nearly 61,000 in March, according to historical price data.

Whether or not the stock-to-flow model holds, there might still be enough demand in Bitcoin to support a slow and steady price rise. Quantitative easing and rising government debt levels, in the meantime, would lead to asset price inflation and currency depreciation. Bitcoin could yet prove to be the ultimate hedge, with gold already stalling.

Bitcoin tends to be an unbalanced wager. If you just spend what you can afford to lose, you'll have a lower risk of losing money and a higher chance of making a profit. Bitcoin appears set to outperform in 2021, based on network effects, increasing adoption, the supply shock following this year's halving and the unpredictable macro context. How long are you going to sit on the bench?

What if the Stock to Flow model for Bitcoin is correct?

The scarcity of a good can be quantified using an investment term called "stock to flow." The total supply in circulation is represented by stock, while the annual supply flow is represented by the flow.

Bitcoin's S2F can be measured to 100 percent accuracy since it is open-source software with a set supply schedule. Following Bitcoin's third halving in May 2020, the new S2F is 56, which is similar to gold. Bitcoin would, however, be twice as rare as gold after the next halving.

The Bitcoin Stock-to-Flow (S2F) model was developed by a pseudonymous quant trader known as PlanB. He believes that as Bitcoin becomes more scarce, its value will rise. PlanB's initial model has since been revised to include a cross-asset price model. If the model holds, the Bitcoin price could hit $288k this cycle. Although no one knows whether it would, considering the potential for such high returns, it may be wise to have a small amount of Bitcoin on hand just in case?

Although the stock to flow model has its detractors, other high-profile investors have taken note. Fidelity Investments, a U.S. investment firm, said in a July 2020 paper, "Commodities with a [high S2F] have long been considered superior value stores. Following the next halving (2024), Bitcoin's stock-to-flow ratio would surpass that of gold."

There is some evidence to back up the idea that a supply shortage is looming. Every ten minutes, a new block of transactions is added to the Bitcoin blockchain. The block reward is given to the miner who verifies each block. The block reward was reduced from 12.5 Bitcoins per block to 6.25 Bitcoins per block after the third halving in May 2020. Every day, an average of 144 blocks are mined, resulting in the creation of 6.25 new Bitcoins. 144 x 6.25 = 900 new Bitcoins mined per day on average.

Wall Street is backing crypto

Wall Street analysts, investors, and corporations have all taken note of Bitcoin's success. MicroStrategy, a market analytics company, revealed in August 2020 that as part of a capital investment plan, it had invested $250 million in Bitcoin, buying 21,454 Bitcoin. The company's overall investment in Bitcoin has risen to $1.145 billion since August.

Following MicroStrategy's lead, Square revealed in October that it had invested $50 million in Bitcoin, purchasing 4,709 Bitcoins. According to Square, the investment is around 1% of the company's overall assets. Bitcoin has the potential to be a more ubiquitous currency in the future, as well as an instrument of economic empowerment that allows the entire world to engage in a global monetary system, according to Square.

Telsa disclosed its Bitcoin investment in early February when it filed a statement with the Securities and Exchange Commission stating that it had purchased $1.5 billion in Bitcoin as part of its corporate treasury strategy. Tesla purchased to gain "more flexibility to further diversify and optimize returns on our cash,” according to the filing.

Last December, headlines said that a senior analyst at Citibank has an incredibly bullish target price for Bitcoin, raising eyebrows. Citibank's institutional clients received a report written by Thomas Fitzpatrick, head of CitiFXTechnicals business insights. The gold market in the 1970s and Bitcoin today, according to the study, are strikingly close. It's unclear if this price target is achievable, but the fact that such bullish research is being offered to Wall Street investors is encouraging.

Bitcoin is winning The Covid-19 monetary revolution

The SARS-CoV-1 coronavirus pandemic has had a huge economic impact around the world. As a result, the behavior of all financial instruments, including cryptocurrencies, was significantly affected.

There was an exodus from volatile financial instruments to bitcoin during the early stages of the pandemic when it was unclear how the situation would unfold. There is a strong link between bitcoin and secure financial instruments like the Swiss franc, Japanese yen, gold, and silver. Then came an increase in the number of infections around the world, as well as sharp drops in global stock markets, especially in the United States, as a result of a complete sell-off of all assets, including bitcoin. Cash was used by investors, mostly the yen and the dollar. Bitcoin lost its safe-haven status during this period, but gold and silver did as well. Despite this, it functioned as a standard, conventional, and trustworthy financial instrument. The association of bitcoin with traditional financial instruments during the spikes on global stock exchanges as the epidemic slows down in the summer of 2020 is particularly important.

The analysis of the cross-correlation between the cryptocurrency market and traditional markets (such as major fiat currencies, major commodities (such as oil and gold), and US stock indices) led to the conclusion that the cryptocurrency market was independent of other markets during 2019 but temporarily correlated with these markets during the second half of the year.

The lack of statistically meaningful correlations in 2019, when traditional financial instruments were unaffected, was most likely due to a market cap asymmetry between cryptocurrencies and traditional markets, which favors the latter, which is still too small to have a significant effect on other markets. Traditional markets, on the other hand, will easily affect the cryptocurrency market as they become volatile. In March and June of 2020, this is what happened.

When is the Most Appropriate Time to Purchase Bitcoin?

Nothing is certain in the stock market, as it is in every other market. When it comes to forecasting Bitcoin prices shortly, everyone's guess is as good as anyone else's. Bitcoin's value has typically risen at a rapid rate throughout its history, followed by a gradual, steady decline until it stabilizes. Bitcoin is a global currency, so it is less influenced by the financial condition or stability of any one nation, good or poor.

For example, speculation about the devaluation of the Chinese yuan has historically resulted in increased demand from China, which has pushed up the exchange rate on US and European exchanges.

Bull markets in Bitcoin in the United States have also resulted in major arbitrage events in markets with far less liquidity, such as Korea, due to capital controls. In Korea, these were referred to as the 'Kimchi Premium.' It was amazingly simple to get Bitcoin into Korea and take advantage of the high premium. After you sold your fiat, the problem was getting it out of the country. Ironically, such restrictions pushed up the price of Bitcoin even higher, when people realized Bitcoin could do something fiat couldn't: allow cross-border transfers of any amount without the need for regulatory approval. Since Bitcoin is apolitical and exists beyond the reach or power of any particular government, both of these examples demonstrate how global instability is commonly seen as beneficial to Bitcoin's price.

What are the Bitcoin investment alternatives?

On March 26, 2021, it was announced that a record $6 billion in bitcoin options contracts would expire later that day. Options contracts worth $4 billion had expired in January. Experts believe bitcoin options would determine the cryptocurrency's price trend in the coming months – so what exactly are bitcoin options?

Bitcoin options are a type of financial derivative that gives you the right, but not the obligation, to buy or sell bitcoin at a pre-determined price on or before a specified expiration date. The strike price is the predetermined price. Unlike buying Bitcoin cryptocurrency outright, Bitcoin options allow you to bet on the future trajectory of a market price, such as if it will rise or fall.

If you think the share price would rise, you will buy a call option. You'd be able to buy bitcoin at the pre-specified price if your prediction was right and the market price rose above the strike price of the bitcoin choice. The amount of profit you'd make from the exchange will be determined by how much the bitcoin price went above the strike price. If your forecast was incorrect, and bitcoin's price plummeted instead, you could let the options contract expire worthless, losing just the premium you paid to open the deal.

For a long time, bitcoin options have been traded on cryptocurrency exchanges, but they were unregulated. Some controlled institutions are now increasingly introducing bitcoin options.

Altcoins vs Bitcoins?

The distinction between Bitcoin and all other digital currencies is immense. Bitcoin has a market capitalization of more than $1 trillion. No other altcoin even comes near. There are no altcoins that are as old or as well-known as Bitcoin.

Altcoins often lack the stability and decentralization that Bitcoin has, making them much more vulnerable to a network-wide assault. Our recommendation is to avoid altcoins and concentrate solely on Bitcoin. Bitcoin almost always outperforms other altcoins for a long enough time.

Bitcoin Taxes

Cryptocurrencies like Bitcoin are far from being without attention from Governments. In fact, many countries across the globe are increasingly circulating what is referred to as Crypto Regulations which aim to determine where exactly they stand on dealing with virtual currencies. Generally speaking, any cryptocurrency that was mined (termed as 'mined' because, for example, it could have been through a series of complex mathematical problems) and any cryptocurrency that was earned through revenue (by way of transaction fees or goods sold - in essence, this is trading activities which is taxed) will be subjected to tax rules by the Government legalities of the country you live in.

Is it wise to invest in bitcoin?

Bitcoin is considered to be at the (extremely) risky end of the investment continuum. Cryptocurrency prices are volatile; some may go bankrupt, some may be scams, and some can increase in value and generate a profit for investors

“Cryptocurrencies could stay niche, become mainstream, disappear without a trace, or something in between," says Danny Cox of financial services firm Hargreaves Lansdown. “Any investment should be regarded as very high risk.”

Mark Hipperson, CEO of cryptocurrency platform Ziglu, makes the case for digital currencies being mainstream. “With more and more major brands embracing crypto, such as Tesla and Starbucks, [Starbucks is testing a way for users of its mobile app to pay for coffee and food with the cryptocurrency Bakkt Cash, for example], there now seems to be little chance that crypto will be accepted in as many places as conventional currencies one day soon.”

Do your homework before investing, and don't put all your eggs in one basket with one business or one cryptocurrency: spread your money around to spread the risk, and only invest what you can afford to lose.

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