Many commentators on Crypto Twitter say “get off zero and invest in Bitcoin!” – But why? In this blog, I plan to outline in layman’s terms why I believe you should invest in Bitcoin.
But first the disclaimer:
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Now that is out of the way… Let’s lay out my opinion of why you should get into Bitcoin.
It is just another share.
The total market cap of Bitcoin is less than Apple, Amazon or Microsoft shares, if you have a 401K in the US or an ISA in the UK or any other tax-efficient investment account or for that matter a pension then you are surely invested in high market cap shares. Look at Bitcoin as the same. When you think of Bitcoin as just a share in the wider crypto marketplace it becomes less scary, well it does for me. Ask yourself would you invest $1000 in a share in a hot new company where there is a lot of buzz around long term prospects and the company was set to disrupt a market in the Trillions? Of course you would. Think about Bitcoin in the same way.
How much do you gamble in general anyway?
Ever been to Vegas? Ever bought a lottery ticket? Think about what you waste on buying lottery tickets or in raffles every year and invest that in Bitcoin. When your best return in Vegas is set at 70 cents on the dollar why not take that money and invest it in Bitcoin where you have a chance of upside. As they say, the house always wins… I look at my own investment in Bitcoin as an amount of money I would be OK losing at a now quite extended stay in Vegas hitting the tables. Admittedly it would hurt if my Bitcoin investments went to zero, but it would not be life-affecting. That is a good way to think about how much you should invest.
The price is going up
This is an ‘over what period’ statement and yes the daily volatility can be scary, but if you invested at any point apart from the crazy peak of 2017 you would be up over a 2 year period. The best guy I have seen to explain this trend is Plan B who is rapidly becoming the go-to person to follow on the trends in the market. Plan B recently posted
“200 week moving average has never gone down, currently increasing at $150 (3%) per month” when you look at an extended time horizon then Bitcoin is a place to invest.
The case for Bitcoin gets even better when the stock to flow data is considered. Paraphrasing Plan B’s seminal blog post in a few sentences:
Dictionaries usually define scarcity as ‘a situation in which something is not easy to find or get’, and ‘a lack of something’.
Bitcoin has unforgeable costliness because it costs a lot of electricity to produce new bitcoins. Producing bitcoins cannot be easily faked. Note that this is different for fiat money and also for altcoins that have no supply cap, have no proof-of-work (PoW), have low hashrate, or have a small group of people or companies that can easily influence supply.
So, scarcity can be quantified by SF.
SF = stock / flow
Stock is the size of the existing stockpiles or reserves. Flow is the yearly production.
I plan to come back to this topic in later blog post but suffice to say you should read this by Plan B and you should also buy the Bitcoin Standard from Saifedean Ammous both the blog post and the book will open your mind to why Bitcoin is worth investing in…
It is so easy to invest
With the extreme focus on user interfaces and making bitcoin easy to get into, it literally takes a few clicks to link your bank account to an exchange such as Coinbase or Gemini and then you can begin building a holding of Bitcoin. You don’t need to be a cryptographer or a cyberpunk any longer to get invested, download the app, link it to your bank account and once the AML (Anti Money Laundering) and KYC (Know Your Customer) steps are out of the way then you are up and running! Do your research, read blogs from different sources, listen to podcasts, buy the dips, and hold (or as they say in crypto hodl) over the medium term and whatever you do don’t get spooked by a 10% drop in the price and sell… you will regret it later.
Still time to be an early adopter
Estimates suggest that only 50 million people are currently invested in Cryptocurrencies. That means you still have the chance to be in on the ground floor of a nascent market and more importantly get in while prices are still cheap. Put another way, imagine you had the chance to be an angel investor in PayPal, Apple, Facebook or Uber, this is how I look at Bitcoin right now, I have the chance to be an angel investor in a Trillion dollar market. Even if you think it’s risky to be in this early then I go back to a point I mace earlier, dip your toe in the water, make a small investment and sit back and see what happens…
Hedge against uncertainty
Anthony Pompliano of Morgan Creek Digital Assets fame is fond of saying that cryptocurrency is presenting itself as the perfect global hedge in times of economic uncertainties. He asserts that this should prompt investors to take notice as their investments in the mainstream markets threatens to shrink any further.
“We are living in exceptionally volatile and unpredictable times. Institutional investors have sought out non-correlated assets as portfolio diversification tools for decades,” wrote Pompliano. “Now that Bitcoin is presenting itself as the perfect global hedge, it will quickly become irresponsible for these investors to remain with 0% exposure to the digital currency.”
So as we reach record highs at the end of a bull run in the Stock Market why not hedge some of your gains in Bitcoin?
In summary, get off zero, take your investment in Bitcoin from zero percent of your investment portfolio and go down the rabbit hole of learning about this nascent market. If the models and bulls are to be believed then the price of Bitcoin will go up in the medium to long term. If it doesn’t you will have had a wild ride, you will have a lot of fun and you will learn along the way. If you are prudent and don’t invest too much then you will be fine. My personal perspective is that you should look to have 1-5% of your portfolio in Bitcoin right now…