Why You Should Own (At Least Some) Bitcoin
Bitcoin's value proposition explained in plain and simple English.
If you are currently not holding bitcoin, this read is for you.
If you are holding bitcoin but wonder whether you should purchase more, this read is for you.
If you have filled your boots with bitcoin, this read is (still) for you… at the very least, for the confirmation bias. :)
In the next few minutes of reading, you will learn why you should own at least some bitcoin - both as an investment and as a hedge in today’s uncertain world.
The Case for Bitcoin as an Investment
Bitcoin is the best-performing asset of the last ten years.
The world’s first cryptocurrency is also the best-performing asset of the last five years.
Now, every investor knows (or should know) that past performance does not guarantee future returns. I doubt that new bitcoin investors will experience the same return on investments as bitcoiners that bought (and held onto) the digital currency in the early years of bitcoin.
However, that doesn’t mean that bitcoin doesn’t still have substantial upside.
From December 2018 to December 2020, the price of bitcoin rallied from under $4,000 to over $25,000. That’s a 525% ROI in two years.
Your little stock ETF portfolio won’t beat these returns!
But bitcoin’s high expected returns is not the only reason why investors (including Wall Street money managers and publicly-traded corporations) are buying up the “digital gold.”
So, Why Are Investors Piling into Bitcoin?
Bitcoin’s limited supply
Bitcoin’s low correlation to other assets
Bitcoin’s returns potential
Bitcoin has a total supply limit of 21,000,000 coins with a decreasing rate of new supply, which creates upward price pressure as the demand for bitcoin increases over time. This is actually the main reason why the price of bitcoin has experienced an astronomical increase in value in its twelve-year existence.
Additionally, bitcoin has historically had a low (and at times no) correlation with traditional asset classes, such as stocks and bonds. While there are periods of correlations with, for example, tech stocks, bitcoin is widely considered an excellent diversification asset in any diversified investment portfolio.
When bitcoin launched in January 2009, one bitcoin was essentially worth nothing. A few years later, bitcoin was at par with the US dollar. Today, one bitcoin is worth over $30,000 and market sentiment points towards a move higher in 2021.
At the end of the day, investors seek high returns. And bitcoin has the potential to generate exorbitant returns.
In addition to being a popular investment, some bitcoiners are “HODLing” the digital gold as a hedge against economic uncertainty and instability in the global financial system.
Bitcoin as a (Doomsday) Hedge
Bitcoin enables anyone with an internet connection and a digital wallet to store, send, and receive money over the internet.
In other words, bitcoin allows you to “be your own bank” as one of its earliest slogans said.
So, in the case of a global economic meltdown, a failing banking system, hyperinflation, or a weakening currency in your country, bitcoin allows you to “opt-out” of the traditional financial system and provides you with an unprecedented degree of individual financial sovereignty.
Bitcoin allows you to have control over your money even if the financial system is crumbling.
The thing is: you don’t hold the money in your bank account. The bank does. You have a claim on that money and it’s under your name (so to speak) but if SHTF, the bank can (and will) do whatever it wants with “your” money.
So if your bank (mandated by the state) decides to “bail-in” your funds, you will not be able to access them.
Sounds dystopian? Yeah, maybe. But that’s what happened in Cyprus in 2013.
With bitcoin, only you control your money.
And what if you piss off the wrong person or get into legal trouble because of a business deal gone wrong? “Your” money in the bank can easily be frozen, or worse, seized.
No one can freeze or confiscate your bitcoin held in a private (non-custodial) wallet.
Do you see where I am going with this?
Because bitcoin does not require a traditional financial intermediary to function, you have complete control over your money held in digital currency.
In times of economic and political uncertainty, holding some of your funds in a censorship-resistant digital currency (that has the potential to substantially increase in value over time) is probably a good idea.
I am not saying: put all your money into bitcoin because the world will end. What I am saying is: it’s probably a good idea to have some money in bitcoin.
Now that you know why you should (probably) buy bitcoin as an investment and as a hedge against political and economic instability, let’s go over why one unit of the “magic internet money” is worth so much.
OK, So What Actually Makes Bitcoin Valuable?
Bitcoin is digital gold
Bitcoin is inclusive, stateless, borderless money for the digital age
Bitcoin is censorship-resistant
Bitcoin’s gold-like features, including utility, portability, and divisibility combined with its mathematically proven scarcity make it gold 2.0. As more and more individuals, companies, and institutional investors are recognizing this, the more its value increases. This has been the case in the past and is poised to be the case in the future.
Bitcoin is money for the internet. Bitcoin runs on an open, permissionless peer-to-peer network that anyone (with an internet connection) can join. No ID verification required!
Anyone can go online, earn some bitcoin, and start using (or HODLing) the digital currency. Prior to the creation of Bitcoin, this was not a possibility. Where PayPal and the like failed, Bitcoin has succeeded.
Bitcoin is borderless, stateless money for everyone.
When you truly let it sink in how disruptive Bitcoin is, it becomes easier to understand why one coin is worth so much.
Bitcoin is censorship-resistance. While you are probably living in a country with a stable banking system and are not a politically-exposed person whose funds are likely to get frozen anytime soon, if 2020 has taught as anything, it’s that we are not as secure as we think.
The global banking system almost collapsed in 2008. Banks fail every year (even without a pandemic). Cyberattacks on financial institutions are on the rise.
I don’t know about you but I sleep better at night knowing that I have some funds in bitcoin, just in case.
The list of reasons why bitcoin is valuable and why you should (probably) own some goes on but in the inaugural issue of “A Little Bit of Anarchy” I wanted to focus on the most important points and package them up in a palatable way.
Peace, love & anarchy,