Why Bitcoin Is A Good Investment
I’m regularly asked if Bitcoin (BTC) is a good investment. My friends, and the world see the price rising during the bull runs and are attracted to it like rats to the sewer.
Then they experience the heavy crashes, and fight to escape like a wildebeest fleeing the clutches of a crocodile.
Bitcoin isn’t for everyone, nothing is, and while I would never give investment advice, here’s why I think Bitcoin is a good investment, for me.
Why Bitcoin is a Good Investment
Bitcoin is the best performing asset of the last decade, by far. Launched in 2009, Bitcoin has risen from zero to its first price of $0.0008 in around 2010, to over $9,000 today.
Incredible gains, and highly unlikely we will ever see an asset perform that well in a decade ever again. So, at an incredibly high value of $9,000 and it’s biggest gains behind it, is Bitcoin still a good investment?
Before Looking at the price, you really should look at the fundamentals of an asset. Bitcoin isn’t a stock, it’s a currency. And at $160 billion it is already the tenth largest currency in the world.
And according to a study by BuyBitcoinWorldwide about 1.3% of the world’s population owns bitcoin.
So at $160 billion market cap, and only 1.3% of almost 8 billion people own Bitcoin, means it has a lot of potential for adoption.
Bitcoin Will Become An Everyday Peer-to-Peer Money
For adoption to really bloom Bitcoin needs to become a peer-to-peer money.
At the moment Bitcoin can only process about 7 transactions a second, and sometimes the transactions cost way too much for an everyday spendable currency.
For Bitcoin to become a peer-to-peer currency it will need to be quicker and cheaper to send transactions.
Ladies and gentlemen, I give you the Lightning Network.
Lightning Network is a layer two technology, built on the Bitcoin protocol, and its main use is to make BTC payments faster and cheaper.
Transactions on the Lightning Network are done in milliseconds and cost fractions of a penny. It’s already up and running, and the network is growing, but everything takes time to gain adoption.
But the main thing holding back adoption isn’t just the nascent technology, it’s the wonky regulatory guidelines.
Most merchants won’t accept BTC yet because they don’t even know what tax bracket it will fall under.
So when the governments of the world clear this up, I believe we will see adoption of Lightning Network take off and people will start using BTC as an everyday payment.
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But isn’t Bitcoin too volatile for merchants to accept it as payment?
Bitcoin price is volatile, no doubt about that. And that is one of the attractions for me. But of course a merchant wouldn’t like the value of his income to drop 10% overnight, so why would they accept Bitcoin as a payment?
Bitcoin is programmable money. It doesn’t need a third party to verify transactions, so any Bitcoin transaction a merchant accepts can be programmed to transfer immediately to the currency of choice.
Not only that, merchants will save a fortune by using Bitcoin. At the moment, they pay VISA, Mastercard etcetera 2% for their handling fees.
And if you’re handling say $1 billion a year, that 2% handling fee ends up being a lot of money. $40 million, in fact. Imagine how much merchants could save by not having to pay VISA and Mastercard.
Bitcoin’s Volatility Is One Of Its Main Attractions
Bitcoin’s volatility is an attraction to any investor. It’s the FOMO pussies who run for the hills, once Bitcoin drops 20% in a week.
Price stability is an illusion, and the only reason the stock market is as stable as it is because it’s being injected with trillions of government printed dollars.
Do you really think the US stock markets should have bounced back so positively, when there’s record unemployment across America since the lockdowns?
Central Bank printing press is distorting reality, and many billionaires and traditional investors understand where the problem lies, and they are making Bitcoin a hedge against the record printing, and inevitable inflation.
They along with many investors see Bitcoin as a free market asset, which isn’t socialized.
The volatility is normal for any new asset finding its true value, and best of all a volatile market is where you will make the biggest gains.
Is Bitcoin a Risky Investment?
Everything is risky to a degree. If you buy an investment property, it might get damaged, or there might be a recession and your tenant can’t afford to pay the rent, or the real estate market might crash again.
Oil went to -$30 a barrel in May. Who’d have thought that last year? Nobody. I believe real estate and oil are also good investments, but of course there’s risk in whatever you invest in.
Investing is risky, but I believe it’s even riskier for me not to hold Bitcoin in my portfolio. Imagine only holding USD in your portfolio. How risky and foolish would that turn out to be?
For me, not investing in Bitcoin is more risky than getting some exposure to it.
Bitcoin Is The Most Secure Network Ever Created
Bitcoin is a deflationary currency. There’s a limit to how many there will ever be. It’s coded into the protocol and nobody can change anything about Bitcoin without a majority vote of hundreds of thousands of network participants, who all want what’s best for Bitcoin.
Those same people are what make Bitcoin the most secure network ever created. 800,000 petaFLOPS secure Bitcoin’s protocol, so to change anything you have to get 401,000 petaFLOPS of vote.
Don’t know what a petaFLOP is? Not many do. It’s basically a lot of processing power, and to give you an idea to how secure Bitcoin is: the most powerful supercomputer processes 200 petaFLOPS, 4,000 times less than Bitcoin.
So that security, and fact that Bitcoin’s monetary policy will never be changed without a democratic vote, gives me confidence that my investment will not be inflated away.
So Is Bitcoin A Risky Investment After All?
Well, the market cap is roughly $167 billion. A lot of money to me and you, but for an asset it’s tiny.
The upside potential for a currency, one that is made for the Internet (a population of almost 5 billion), and a currency that knows no politics or borders is unbelievably high.
If Bitcoin x10 in value its market cap would be $1.7 trillion, and still it would be insignificant compared to gold, which has a market cap of roughly $10 trillion.
So the upside potential of Bitcoin is significantly higher than the downside. This asymmetric possibility makes it such an attractive investment, that even if one was to allocate 1% of a portfolio into Bitcoin, it could cause significant gains, but have minimal effect if the worst case scenario was to happen.
Example, if a hedge fund has $10 billion AUM, and it allocates 1% into Bitcoin, working out at $100m.
Now, let’s say Bitcoin does x10, that would give the hedge fund a nice $1 billion in Bitcoin, and a 10% rise in value.
If Bitcoin was to go to zero, that same hedge fund would have $9.9 billion AUM at least. Of course, it wouldn’t want to lose $100m, but the risk reward ratio for Bitcoin is unbelievably in an investors favour, especially if you consider how secure the network is.
Bitcoin Is A Really, Really Good Investment
Investing is risky, but if you don’t risk anything you don’t gain much. And the risk reward ratio for investing in Bitcoin is massively in favour of the investor.
It’s very early days in the adoption of Bitcoin. Only 1.3% of the world uses it. X10 adoption would be 13% of the world, and Bitcoin’s value will ultimately be driven by its adoption.
But first it will find its value as a store of value, and that isn’t doing too bad. Right now it’s a hedge against the great fiat bubble that governments can’t help but inflate away.
Bitcoin is a currency that can’t be inflated and can’t be manipulated. Bitcoin isn’t just a good investment, it’s a necessary investment, for me. You do your own research.