Early Investing

Bitcoin Stays Strong

Bitcoin Stays Strong
By Adam Sharp
Date January 31, 2020

If you’re a regular reader, you know that for the past few years I’ve been primarily focused on bitcoin in the cryptocurrency space.

Bitcoin is incredibly far ahead of the competition in all the areas that matter. Honestly, I wish altcoins were doing better in terms of adoption. But most are struggling.

Today, bitcoin is the only cryptocurrency fulfilling a real purpose for millions of people. In places where inflation is high, like Venezuela and Argentina, people use bitcoin as a store of value. In these kinds of places, if you store money in the local currency, it’s guaranteed to lose value over time. At least with bitcoin, you have a good chance of increasing your purchasing power.

In the “developed” world, many of us hold bitcoin as a hedge against future monetary chaos. We believe central banks are bad stewards of our money, and we are starting to look toward alternatives.

Bitcoin has also been used by organizations like WikiLeaks to raise money when Visa, Mastercard and PayPal shut down their accounts. It’s money that can’t be censored.

Bitcoin’s large user base alone sets it apart. But it also has a huge group of developers and contributors who volunteer their time to improve it. And it has the largest network of computers (miners) securing the network.

Importantly, bitcoin is by far the most liquid cryptocurrency. You can exchange bitcoin for local currency around the world using an exchange or a service like LocalBitcoins.

Bitcoin also has some nice features that are designed to reward long-term holders. The main one is bitcoin’s “halving” effect. Every four years, the amount of new bitcoin coming onto the market gets cut in half.

Previous halvings occurred in 2012 and 2016. Both served as powerful price catalysts. The next halving will occur on May 18. The inflation rate (amount of new bitcoin coming on the market per year) will be reduced from around 4% to 2%.

Price Trend

Now let’s look at bitcoin’s annual low prices.

  • 2012: $4
  • 2013: $75
  • 2014: $200
  • 2015: $185
  • 2016: $365
  • 2017: $780
  • 2018: $3,200
  • 2019: $3,360

I believe the major slowdown from 2014 to 2016 was caused by the notorious Mt. Gox hack. At the time, Mt. Gox was the largest bitcoin exchange in the world. When it was hacked and lost almost all its users’ funds, it was a disaster.

Many people are using this previous slowdown period to suggest that there will be another slowdown for the next few years.

But I believe this view overlooks how impactful the Mt. Gox hack was to the bitcoin movement. It set us back a few years, and rightfully so. A lot of very hard lessons were learned. And exchanges started using much better security practices after that.

Today, exchanges use bank-level security and store 95% of their coins offline in “cold storage.” Another Mt. Gox disaster is highly unlikely today.

So I don’t believe we’re going to see a similar slowdown. I believe we’re headed higher, especially considering we’re in a time of unprecedented economic uncertainty.

Debt around the world is at record levels. Interest rates are at record lows. And it all looks increasingly unsustainable. This continuing financial chaos should support bitcoin prices.

As I write this, bitcoin is trading around $9,400. I believe bitcoin is well-positioned here.

We have the upcoming halving and powerful worldwide factors at play. I am optimistic we’ll see new all-time highs sometime within the next year or so.

Of course, it’s bitcoin, so anything could happen. But I sure do like the odds.

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