It’s been a really volatile few months for Bitcoin. Just look at a chart of Bitcoin’s price in the last 12 months. In January, 2021 Bitcoin surpassed forty thousand dollars a coin. But some of the biggest names in finance say that it could be several times that by the end of the year, it’s probably going to one hundred then one hundred and fifty then two hundred thousand.
And unlike Bitcoins rally in 2017, which saw the price rise exponentially and then plummet. Crypto experts say that this time bitcoins run higher will last. I don’t think it’s a bubble. Well, this rally is a is a game changer. This is the one we’ve all been waiting for. The covid pandemic and the subsequent central bank actions is what really drove most of the institutions into this space. I
can’t tell you how many folks I’ve spoken with who have said I never really looked at this seriously until March of 2020. Diddy Taihuttu, his wife and three kids bet all they have on Bitcoin? I never had second thoughts. I’m always like it goes up and it goes down. So it will come good again it will go back up. I’m always a positive believer. Even pro athletes are going all in on Bitcoin.
NFL player Russell Okung is the first player in the professional football league to essentially collect a portion of his 13-million-dollar salary in cryptocurrency, which seemed like a good idea as Bitcoin topped forty thousand dollars a coin at the start of 2021. But it’s since fallen from that record high. So what’s going on with Bitcoin?
NOT A BUBBLE
The price of Bitcoin hit a record high in January 2021 topping 40000 dollars, and some analysts say the cryptocurrency has a lot of room to run higher. Analysts at JPMorgan think Bitcoin prices could rally as high as one hundred and forty-six thousand dollars. And the global head of Citi fx technical says the charts signalled that Bitcoin could reach 318,000 by December 2021.
Taihuttu bought the bulk sum of his Bitcoin holdings when it was trading at around nine hundred dollars in early 2017 at Bitcoin’s peak in January 2021, his investment was up roughly 4400 percent, but the family didn’t cash out. Instead, they just spend more when bitcoin is up and they spend less when it goes down. We live on the flow of Bitcoin so we don’t really worry about the capital, the value we have. You know, we know that we have enough to live every month.
Even as Bitcoin peaked during its 2017 rally, the family stayed invested in the volatile cryptocurrency. Once the bubble burst and the price tumbled down to around three thousand dollars Taihuttu and his family doubled down on their Bitcoin gamble. I never doubted that we would crash to zero. We bought more. You know It’s the cycle. It’s the market cycle. And every stock and every asset in the world and the market cycle of bitcoin as markets like our world.
Part of what’s different about Bitcoins rally in 2020 versus 2017 is that institutional investors are now adopting Bitcoin, lending it newfound legitimacy and helping to erase the reputational risk of investing in the cryptocurrency. 2017 was an exciting time, but it really was I guess you could summarize it as a crypto native and retail driven market. It definitely brought some eyeballs and headlines to this space that I think was beneficial in the long run. But most of what that market represented was a much, much less mature market than we see today. We’ve seen the majority of folks like insurance firms and asset managers, hedge funds, corporate balance sheets coming to the market in 2020.
Data from Glass node shows that about 95 percent of Bitcoin’s market capitalization is kept in wallets that hold at least one Bitcoin, indicating that the vast majority of Bitcoin holders today are mostly wealthier investors rather than the smaller scale retail speculators. Well-established billionaire hedge fund manager Stanley Drucken miller and Paul Tudor Jones now own bitcoin and big fintech players like Square and PayPal are also adding crypto products.
This kind of mainstream adoption is hugely important because cryptocurrency is like bitcoin aren’t backed by an asset. Nor do they have the full faith and backing of a central government.
CURRENCY VS COMMODITY
They’re valuable because people believe that they’re valuable. So it goes a long way when some of the biggest names on Wall Street buy in Bitcoin can be used to buy, sell and price goods. And big fintech players like PayPal now allow users to buy things with Bitcoin. So is it a currency that is the original intent of Bitcoin? It was to replace our fiat paper Currency and it’s supposed to be digital. But Bitcoin also behaves a lot like a commodity such as gold or oil.
Its price is highly volatile and there’s a marketplace where it can be bought and sold. I view Bitcoin as a commodity. It is driven by supply and demand. It trades like a commodity. It trades like a financial asset. And similar to other commodities. You can speculate on the future price of Bitcoin through the derivatives market. Plus, in 2015, the Commodity Futures Trading Commission officially class Bitcoin as a commodity in the U.S. So Bitcoin fits a couple different definitions. For me, it’s a combination. For me as a store of value, I’m protecting my wealth, you know, because I have control of my bitcoins, whatever might happen to governmental or banking system, I am in complete control of all my wealth.
And a part of that is stored value and a part of that I use as currency. But even though Bitcoin can be used to buy and sell goods, the numbers show that more investors are choosing to store their bitcoin rather than spend it. Which isn’t all that surprising given Bitcoin sky high price projections. The number of accounts buying more than a million dollars’ worth of Bitcoin and then moving it off the exchanges is up 180 percent from 2017 to 2020, according to chain analysis. A block chain forensics firm, which goes to show that in the midst of economic and geopolitical turmoil, more and more investors are turning to Bitcoin to weather the storm.
JP Morgan now says that if Bitcoin’s market cap keeps growing, it could actually rival gold as a safe haven asset. A big part of what makes a digital cryptocurrency like Bitcoin so safe is the technology that was used to build it. It’s something called block chain, and you can think of it as the digital ledger where all Bitcoin transactions are stored. All of those Bitcoin transactions aren’t getting authorized by central bank. Instead, they’re being computed by a network of people around the world. In the 12 years of history, not a single entry on its block chain has been fraudulent.
Now they processed probably close to 10 trillion dollars of transactions and not a single fault’s entry in the ME. You know, that same 12-year period of time, what percent of banking system activity was false? It’s probably close to seven or eight percent. The decentralized nature of cryptocurrencies, like Bitcoin, is a big part of what gives it its value. To achieve that kind of security while being completely permission less. Anyone can actually transact on this.
I mean, that’s a pretty incredible feat. And so I think that’s why Bitcoin is valuable, because the more people that own and use it and then begin to transact on it, the more valuable the bitcoin is itself.
BITCOIN’S RISING VALUE
Analysts say that the Bitcoin rally, which began at the end of 2020, also has a lot to do with the fact that there’s a finite supply of Bitcoin in the world. There will only ever be 21 million bitcoins in existence because like other crypto currencies, it was built around the principle of a finite supply.
As of January 2021, the total number of mined bitcoins is at roughly eighteen points six million. So it’s nearing its maximum threshold, the surge and interest from mainstream financial players. It hasn’t just reformed Bitcoins image, it’s also fomented a supply shortage. Comes down to supply and demand. There’s a lot of demand. There’s not enough supply bitcoin for every financial institution to have their own reserve to serve their clients or to serve their customers, just take PayPal.
It began allowing its 360+ million users to buy, sell and hold Bitcoin in October 20 20. The company will need to buy Bitcoin somewhere. And then there’s Visa, which is working with 25 digital currency companies on a mix of Bitcoin related products and services. Experts agree that what we are looking at is a potentially huge supply crisis because there won’t be enough new bitcoins mined every day to fulfil the need by major companies.
What it comes down to is there is a large and emerging group of institutions that have an enormous capital base that are reallocating that are all effectively initiating allocations to this space. And if you think about the supply demand model of a commodity, the supply curve is declining over time to effectively zero and the demand is increasing exponentially. That interest from institutional investors and doesn’t appear to be slowing down.
More than six out of 10 investors surveyed by Fidelity in 2020 believe digital assets have a place in investment portfolios. And those inflation worries, well, they’re not going anywhere either. I do not think it is a bubble, really, because of what’s happening with the U.S. dollar, our currency is becoming super inflated. Countries around the world are strapped for cash. The covid pandemic has decimated government coffers. And because raising taxes isn’t really an ideal option in places like the U.S., where there is record high unemployment, some countries are just printing new money.
Instead, Bitcoin isn’t pegged to other currencies. It’s valued against that limited supply of mind coins, which makes it the perfect alternative to a depreciating U.S. dollar and a hedge against inflation. For someone in South America or, you know, for example, in Venezuela, where you’re going through a regime and your currency is appreciating daily, it represents a stable value, which is a hard concept for us to grasp.
The world’s biggest Bitcoin buyers are increasingly based in the US. You break down the Western hours and Eastern hours, there seems to be a clear bid through Western hours, which would indicate U.S. institutions buying Bitcoin and Eastern based institutions, potentially wells and mining farms and exchange operators that are selling down during Asia hours.
As more bitcoins trading activity moves stateside, the question of how to regulate crypto currencies has been top of mind for many of the country’s financial regulators. We have right now a patchwork of state and federal regulation. Bitcoin is regulated according to how you use it and where you live In the U.S. It’s quite a fragmented process because there are many different financial agencies in the United States, both at the federal level and the state level.
And each has a particular area that they regulate. The U.S. Commodity Futures Trading Commission treats Bitcoin as a commodity. The IRS regards it as a property. And even though former Securities and Exchange Commission chairman Jay Clayton made it clear that Bitcoin is not a security, the SEC does also play a role in regulating the cryptocurrency when, for example, it is offered to retail customers through an investment fund.
Some states have become very aggressive and they’re doing that because there’s a lot of concern about consumer protection, retail investors getting ripped off. Other states are taking a different approach and trying to be as innovative as possible. But every regulator in every state essentially confronts the following question how do I balance, on one hand, promoting innovation and economic growth and on the other hand, ensuring there’s no fraud, manipulation or damage done to investors?
In my view, is that what we really need is a national framework with consistency among the states. Despite Bitcoin’s recent dip, standardizing cryptocurrency regulation across the country is going to be key as time passes. Right now, Bitcoin’s market cap is still relatively small. It would have to quadruple to match the two points seven trillion dollars that are invested in gold. And take a look at this chart. Bitcoin is dwarfed by companies like Tesla and the number of people who own crypto also surprisingly, quite small.
Today, I still think in terms of real holders, it’s still less than a million people out of seven billion. So it’s still low on terms of penetration. But as the Taihuttu family can personally attest to, this is changing fast. Auctions spreading worldwide at a very rapid pace. It has all the plus the gold value has all the plus for physical cash because it’s your cash. And yes, you can also trade options and futures. It has everything combined in one asset. Bitcoin is a revolution.