I previously discussed past market cycles from a strictly numbers point of view. Now I am going to tell you the reasons I am bullish on fundamentals that go far into the future:
Only 21 Million Bitcoin will ever be mined — “halving” every 4 years. This is slow, predictable, pre-programmed, and limited inflation. Compare it to the US Dollar, Euro, and all other hyper-inflatable central bank currencies. They are printed at whim, printed faster now than ever before, and not according to any pre-programmed plan, constraining laws, or anything. And more is being printed any day now — to the tune of $1.9 Trillion USD. Compared to these central bank currencies, Bitcoin’s slow increase in supply is actually a decrease in supply. In other words, if demand stays the same, its value will increase over time. “Traditional” money only inflates over time.
The price of Bitcoin markedly increases as demand increases since one cannot simply print or generate more like a central bank does with national currencies.
This goes in cycles, paralleling the long-term price fluctuations. What originally started as an idea supported by cryptographers, computer geeks, libertarians, and anarchists, has grown in popularity over time. In 2017, we saw the first large-scale wave of tens of millions of retail investors wanting to get some, resulting in the hysteria of the bull market of 2017 and early 2018, resulting in a long-term bear market that lasted several years. Bubbles driven by retail hysteria have come and gone over the centuries, going high and crashing low. From Dutch tulip mania in 1636–1637 (where people mortgaged their houses to buy tulips) to the dot com crash of 2001 (where companies changed their names to “.com” and their stock prices skyrocketed when they didn’t even have a website), there are plenty of examples to choose from.
However, Bitcoin is different. Here’s why:
Before the recent bull market cycle, the demand grew with larger institutional investors. At first, innovative and contrarian money managers led the way.
Starting in 2019, large publicly traded corporations openly started to invest in Bitcoin as a hedge against inflation. Now large corporations are jumping on board, and it will only continue.
3. Institutional Demand
Yes, of course Elon Musk and Tesla made all the recent news.
Why is this its own point? Because let’s face it without getting into conspiracies of politics, there are large corporations and powerful families and individuals that retain a lot of control and power in financial circles. They have large stakes in valuable assets and as the world shifts into valuing a new asset — they are not about to get left behind. The “smart” money, corporations, institutions, whatever you want to call it. The dominoes have already started falling, there is no way to stop them now. And they are just beginning (incomplete list, in no particular order):
#1 Grayscale Bitcoin Trust — 648,467 Bitcoin
#2 Chinese Government — 194,775 Bitcoin
#3 Block.One — 140,000 Bitcoin
#5 MicroStrategy — 71,090 Bitcoin
#6 US Government — 70,124 Bitcoin
#10 Tesla 42,857 Bitcoin
#26 Square — 4,709 Bitcoin
Note: The above was originally written on 22 Feb and is already out of date.
Square bought another $170 Million USD Bitcoin on 23 Feb and MicoStrategy bought another $1 Billion USD more 24 Feb.
4. It is a trustless system
At a time in the world when trust in governments, banks, and the rules set by the super-wealthy is decreasing, Bitcoin is based off on cryptography and executed by a vast network of powerful computers over the Internet. It does not depend on the uncontrolled decision of another human being and their passions, prejudices, hatreds, or fears.
Like any currency, it is based on confidence. And more and more people trust their own government less, and so trust a currency with rules that cannot be changed.
5. It is digital
In today’s world, email has superseded mail. Digital currency has superseded cash and coin. It may not be “real” as detractors would say, but also email is not “real” mail. Don’t look now, but the post office is fighting bankruptcy, and you would have a hard time finding an 8-year-old or an 80-year-old without an email address.
6. It is decentralized
Again, by being under the control of a vast network of computers on the Internet all over the world, no individual government, corporation, politician, or individual can take control of it. There are no borders, no one can decide who gets to join, who they can exclude, who gets to use it, who doesn’t. Your account can’t be closed down, and no one can take your Bitcoin (if you have your own private key). Even a government “ban” cannot actually stop a transaction but can only prevent companies from openly buying and selling it.
7. All transactions are recorded on a permanently public ledger
Detractors have stated incorrectly that Bitcoin makes it easier to launder money, commit human trafficking, and sell drugs. This is not the case. It is far easier to do so with paper currency or coins. Perhaps in 2012, when few understood the programming behind this. But this is no longer the case. All transactions are publicly recorded in 1-megabyte sized records called “blocks.” Once a block is confirmed on the network, it becomes a permanent record. Blocks follow one after the other and are thus referred to as the “blockchain.” The blockchain is a permanent record of transactions, where one address sends Bitcoin to another address. There is no permanent or nearly complete record of all cash money that is used to buy and sell things anywhere in the world. If you don’t believe me, call the IRS!
8. Bitcoin is Attack Resistant
All efforts to attack Bitcoin have failed, with former detractors becoming supporters. The CEO of JP Morgan Chase famously called it a fraud in 2017. Then, in 2018, it was revealed the same bank was actively developing its own blockchain project. And in 2020, senior analysts referred to it as “resilient,” and now the same bank is saying they will “have to” offer Bitcoin-related services.
Each time the price crashes, large institutions, and eager retail investors are there to buy up Bitcoin at a cheaper price.
9. Expanding Use Cases
The final and most compelling argument again Bitcoin is its lack of use cases — in other words, where can I use Bitcoin to buy things? Well, that is about to become a distant memory.
BitPay has been connecting businesses with the means of accepting Bitcoin for years.
Some Crypto institutions like Gemini and Coinbase have or are introducing cards where you can spend your Bitcoin while the retailer receives US Dollars. There are also “Bitcoin-back” services being offered by Gemini, Blockfi, and Lolli.com.
Visa and MasterCard are planning the incorporation of Bitcoin services for clients in 2021.
And US banks were legally allowed by the Office of the Comptroller of the Currency (OCC) to assist clients in buying, selling, and saving cryptocurrencies. GAME OVER.
Anyone out there planning on stopping Bitcoin from becoming a world-wide currency? Good luck, your time is almost up.
Coming up next week:
What the Heck is Bitcoin, anyway?
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This article is not investment advice, nor does it take your personal financial situation into account. Never invest more than you are willing to lose, and don’t buy Bitcoin or other investments on credit. I write about my observations and personal opinions with the purpose to share what I have learned with others.
Disclosure: I am invested in Bitcoin and other cryptocurrencies.