Doc's Daily Commentary
Mind Of Mav
10 Upside Reasons To Invest In Bitcoin
I am bullish on Bitcoin long term.
As someone who invests in Bitcoin, it’s important that I know and understand the upside risks so I know if I can stay in a trade or when to get out if the upside risks change.
So, let’s cover the 10 Upside “Risks” for investing in Bitcoin.
The upside risks for Bitcoin are:
- Bitcoin is an extremely volatile asset
I listed this as a downside risk but this is also an upside risk. If you frequently trade Bitcoin or stocks, you probably at times find yourself impatient or “bored” with a trade and you end up exiting it a moment too early. Or perhaps you are watching a cryptocurrency or stock and never are able to “hop in” at a good price. Well, that’s usually not an issue for Bitcoin. It moves quickly up and down so you often are allowed a chance to find an “entry point” to buy some Bitcoin. You often also don’t have to wait long for it to move compared to other assets. While Bitcoin will always maintain some volatility, as it becomes more institutionalized and mainstream, its price should not fluctuate as rapidly and will help it gain more widespread adoption.
- Bitcoin has a first to market advantage
Almost any technology that is the first of its kind has a “brand name” appeal to it and is the original in something, especially in technology, gives a huge advantage. I’ve used Facebook since college and have a hard time moving to Instagram or Snapchat (while all my younger cousins who started on Snapchat most use it daily). Apple was the first to make a smartphone back in 2007 with the iPhone. Their newer iPhones rarely offer better features compared to Android rival phones but they still dominate the US smartphone market at 40%. Toyota with the Prius owns 40% market share in the hybrid market. Tesla with EV cars owns 18% market share, 3 times more than the next closest competitor. Netflix has half of the adults in the US using their streaming services. All these companies were considered first to market and are all vastly superior and trusted names in their spaces. Can any one of you imagine any of those going away? In the cryptocurrency industry where there still is not a lot of trust, Bitcoin stands out as the de facto cryptocurrency that is most trusted by most investors. When you think of or mention crypto, most people think of Bitcoin and that will help Bitcoin having staying power and act as a store of value. Thousands of cryptocurrencies have come out since Bitcoin emerged, yet Bitcoin truly is far and away the market leader even 12 years later.
- Bitcoin has gold like properties but better
All the gold that can be mined in the entire world is a set, fixed number. The amount of Bitcoin that will ever be mined is fixed at 21 million and is expected to all be mined by 2140. The limited amount of Bitcoin that is created on a set, non-manipulated mining cycle allows it to have scarcity and act as a store of value as stated by billionaire investor Mike Novogratz. In fact, one could argue it is better than gold because there is more certainty in its production rates and its ledger is public information so you know who has how much Bitcoin and can track all it’s transactions. You can’t say that about gold. In this era, if you needed to move from one country to another, would you want to carry it in your pockets and have to guard it? Or would you rather have a Bitcoin wallet you can easily access from any computer? I would bet on the latter. Furthermore, as I mentioned in my previous post, some may argue that Bitcoin’s supply is NOT limited as the miners and developers would choose to update it’s code to add more supply. But if you know anything about the Bitcoin or even computer communities, they typically are very steadfast and committed to their software and virtues. It is for this reason I believe it is extremely unlikely that Bitcoin’s miners and developers would ever deviate from their original plans and goals and Bitcoin truly is the new digital gold.
- Bitcoin is the most trusted cryptocurrency
There are over 7800 cryptocurrencies at this moment. Many are faster for processing payments (XRP was built purely for payments processing and can do a transaction in 0.038 seconds) or others have the ability to process more transactions within a block (as Ethereum was upgraded for recently). But Bitcoin has still the biggest market cap of all, showing the market’s trust in it. Its supply is limited, unlike Ethereum, the #2 cryptocurrency whose current and total supply is still unknown. Who would you trust more? Bitcoin who was originally designed to be used as a truly decentralized currency with a public ledger or Ethereum who also has a public ledger but originally gained major usage and notoriety through an Ethereum powered game called CryptoKitties?
- Future monetary systems are being built on Bitcoin
While it’s price prevents it from having a ton of utility, gold has been used to back the world’s financial system since the 15th Century when the Medici’s started a bank backed by gold florins (I highly recommend listening to The Orange Pill podcast episode “The Hierarchy of the Balance Sheets”). Now the same is happening with Bitcoin (cause who wants to have to mine, guard, or ship physical gold anymore?) BlockFi, a Bitcoin backed bank, is offering 8.6% interest on accounts and you can even secure Bitcoin backed loans from them starting at 4.5%. There are tons of exchanges where you can buy Bitcoins now such as Coinbase or Robinhood. You can also buy Bitcoins via your stockbroker using ETFs such as Grayscale’s GBTC and its new competitor OBTC, or even buy it via futures contracts or options contracts ($300k strike anyone?). Or how about from Square’s Cash App or even Paypal (who have bought up 70% of all new Bitcoins mined of late). Build it and they will come and the buyers are coming in droves.
- Billionaires are buying Bitcoin
Social Capital’s Chamath Palihapitiya and famed hedge fund investors Paul Tudor Jones and Stanley Druckenmiller have touted Bitcoin lately. Raoul Pal, a former hedge fund manager, liquidated 98% of his assets to buy Bitcoin. Even Mark Cuban is trying to hoard Bitcoins by giving $25 gift cards for those who spend $150 on Mavericks merchandise! (I call that highway robbery if you know that future Bitcoins are going to be worth +$100k.) Even famed Tesla investor Cathie Woods who thought Tesla was worth $7000 per share (before its split and seems to be right with Tesla sitting in the $800’s, halfway to her pre-split target) thinks it can reach $500k one day. Don’t do as they say but do as they do and it’s always a smart play to follow these astute investors. Heck, even institutional investors are buying and hoarding Bitcoins.
- Bitcoin is becoming more legitimized as it gets more regulated
As more institutions and billionaires buy Bitcoin, it becomes even more legitimate. No one would want to pick a fight with billionaires once they own and have Bitcoin. So instead, they are moving to regulate it. The OCC approved US banks holding cryptocurrencies as assets. If you did your taxes last year in 2019, you were asked if you held any cryptocurrencies and now they will be taxed as property in 2020. We all know, once something starts to have regulations and gets taxed, it becomes a fully legitimate industry. As we are seeing in the weed industry, where it is getting taxed locally and on a state level, once you are taxed you are a recognized industry and you will skyrocket as you have a legal avenue to making money. Now that Bitcoin and cryptocurrencies are taxed, the sky is the limit. From North America to Australia to the EU, Bitcoin is accepted by many countries.
- Bitcoin is safe and traceable
If you have a good hard wallet, the only time it can be stolen is when your hard wallet connects to the Internet (similar to if you put your cash in the bank who is Internet-connected). If you are using an online hot wallet that is always connected to the Internet, you will have more risk of being hacked based on how well the service holding your wallet is secured. This is no different than the risk of making payments online with your bank account or credit cards. How much do you trust your bank to secure your account or information where their systems are completely centralized? Compare that to Bitcoin that uses blockchain technology which is decentralized (meaning a hack on one miner should not affect other miners) with a public ledger where you can track all transactions and keeps you somewhat anonymous? Ask a cybersecurity professional and they will tell you not to have a single point of entry for failure or hacks and you can see which one is more secure. Ultimately like traditional payment systems, it is up to you to secure your money and information but Bitcoin with its SHA-256 encryption is way more secure than you losing your physical wallet. And it definitely is not a good place for criminals to use anymore as proven when the FBI seized $1 billion worth of Bitcoin originating from the shady Silk Road.
- Improvements are being made to make Bitcoin processing faster
One of Bitcoin’s major criticisms is that it is slow to process transactions (typically 10 minutes on average, which is still faster than traditional ACH transfers). However, the Lightning network is being built as a second layer on top of the Bitcoin infrastructure that would allow for faster and more transactions to happen. With the addition of smart contracts, it would allow Bitcoin to have the same power as Ethereum and process complicated financial transactions at the speed of light. Imagine buying a house could take a week instead of the traditional 30 days or more as the property would instantly change hands once the terms of the smart contract were reached and verified at the speed of light. The possibilities are endless and in a world where time is money, the more transactions that can happen, the faster the velocity money can occur to allow that to happen and grow economies.
- Bitcoin usage is growing
There are now an estimated 100 million Bitcoin wallets with value and 11% of Americans holding Bitcoins as stated on bitcoinmarketjournal.com. In fact, 1 Million users transact Bitcoin per day and according to the data from Blockchain.com, it grew from 45 million users in Jan 2020 to 65 million users in Jan 2021. That’s a whopping 44% gain in a year! Wouldn’t you want to be on the train that’s speeding and leaving the station? I sure would, especially one with $100k-$220k targets.
Millennials will be the next large generation of investors and along with Gen Z are larger owners of Bitcoin as shown in the chart below. That train should just grow as they become the new class of money entering the market.
Ultimately, it is up to you to decide if these upside risks outweigh the downside risks. Regardless, it would be a safe bet to include even just 1% of Bitcoin into your portfolio because the upside is so much greater than the downside risks. As mentioned above, a whole new financial system is going to be built upon cryptocurrencies. Why not invest in the best and well-known one in Bitcoin? The possibilities are endless. A blockchain system for even fiat currency could lessen the overhead of banks that they are able to offer higher interest rates, much like BlockFi is doing with 8.6% interest rates on Bitcoin.
Ever since World War II, the United States has served as the reserve currency of the world, allowing for global trade to take place and give the world some stability from that financial standpoint, just like banks based on the florin did 500 years ago. As a democracy, the Fed posts all its data online for everyone to see, helping justify the case as a world reserve currency and make the USD trusted and accepted worldwide as payment. However, as the Fed prints more and more money and the US amasses more debt, who would you trust more, and who do you think will hold more value?
The Fed and the USD who “transparently” shows all its policies and data or Bitcoin whose ledger is public information and decentralized so no one entity could control it. In a post-covid world where supply chains are changing and we are becoming a more geographically localized economy, you need someone (or something) to help run the world’s global financial system so trade can still happen.
Why not Bitcoin?
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