Many investors and enthusiasts believe that Bitcoin (BTC) has the potential to revolutionize the “old” global financial system. If this is to happen, there must be “Bitcoinization” – increased adoption of Bitcoin. When this happens, the price of the cryptocurrency will increase significantly – this is due to the law of supply and demand. BTC could therefore prove to be a great investment.
Bitcoin and its investment potential
In this article, we’ll look at bitcoin as an investment asset. The technology behind it is fascinating, but this time we’ll put that aside for a moment.
Ultimately, the supply of BTC is limited to 21 million units. New bitcoins are constantly entering the market, but their number is known in advance. This eliminates the threat known from the functioning of fiat currencies. Each central bank can quickly print more of the currency it manages. In the case of BTC, this is not the case. So as adoption grows, the price of bitcoin will also grow.
Now look at the scale of growth we’re talking about. On March 9, 2020, the price of bitcoin fell to around $3,800 as a result of the covid crash. The bottom of the 2018 bear market was around $3,150 (amounts may vary depending on the exchange). In early November 2021, the price drew its then ATH of $69,000. Assuming someone bought BTC at the bottom in 2018, that’s over 2,000% return on investment!
In this cycle, we started the rally from around $15,500. If BTC grows by half as much as in the previous cycle, it will still be over $100,000!
Why should it grow?
As you can see, so far, investing in BTC has paid off. Will it continue to do so? It is unknown. However, there are too many good things happening on the market to be pessimistic.
BlackRock and other leading investment firms have created – importantly, with the SEC’s approval – bitcoin and ether ETFs. They allow people who have not done so before to invest in the cryptocurrency market indirectly, because they could not do so because they did not know how to do it, and technical issues were an obstacle (e.g. setting up your own BTC or ETH wallet).
If you imagine the cryptocurrency market as a large reservoir, so far only half-filled, funds are another source of liquidity to it. It will simply be easier to enter the market during an advanced bull run on the “street” – precisely through ETFs. Institutions are already entering the market through funds.
In addition, tomorrow, September 18, the Fed authorities will decide what to do with US monetary policy. There are many indications that they will start a cycle of cuts. The question is whether it will all start immediately with a strong blow in the form of a 50 bp cut in interest rates, or a cautious push – only 25 bp.
The Fed Watch Tool, which has acted as an oracle so far, estimates the chances of the former scenario at a whopping 69%. Importantly, over the weekend the chances of a 50-basis-point cut were estimated at “only” 50%.
The above data shows that we have a growth cycle ahead of us. Firstly, because the cyclicality of BTC is still in effect. In addition, lower interest rates will drive growth in risky assets.
In addition, Donald Trump may win the US elections. If we are to believe his promises, he wants to make the US a crypto-empire. But there is another side to the coin.
Threat: maybe there will be no repeat of the past?
Exactly! So that things are not so rosy, we must honestly admit that at least one factor can disrupt the optimistic scenario.
More and more analysts indicate that after the pandemic and the war in Ukraine, we may see an armed conflict between the US and China. Although some events in BTC’s history show that the cryptocurrency can already be treated as a safe haven, we do not really know how the bitcoin rate would behave when a war broke out between the two powers.
Regardless of who wins the US elections, the country will head towards a confrontation with China. It is simply in the interests of this empire. However, Trump as president may accelerate this scenario. He will certainly intensify the trade war with the Middle Kingdom. He may try to hit the hostile bloc of countries with sanctions and tariffs (to be clear: the Joe Biden administration is doing this too). How has it ended in the past? During World War II, such a policy provoked Japan to attack the US…
To invest or not to invest?
So what to do? Invest in Bitcoin or not? As I showed in one of the above paragraphs, investing in cryptocurrency can be a bull’s eye. However, you should also consider the worst-case scenario and invest not only in BTC or ETH. It is also worth supplementing your portfolio with gold, for example (although also cautiously, because the metal of kings has already gone up in price a lot in recent months). This will allow you to manage your risk more wisely.
The above text is not investment advice. Always invest at your own risk!
