Until recently, as an investment, bitcoin has had unique and obvious risks, but that is changing, with new rules and regulations that have driven wider institutional adoption.
Throughout its 12-year history, the world’s most valuable cryptocurrency has faced extreme volatility, with prices soaring and falling by as much as 10% on any given day – reaching an all-time high of more than $ 41,000 earlier this month this. Beyond wild price swings, bitcoin also has structural issues that most asset classes don’t have to consider, such as lost or stolen password keys, that can wipe out someone’s entire investment.
Fortunately, the rapid growth of bitcoin has caused the government and institutions to step in and address many of the risks associated with the digital currency, with the U.S. Currency Manager’s Office in authorize banks and custodians to provide cryptocurrency services, which eliminates these kinds of problems.
In short, bitcoin has matured – albeit still in the early stages of adoption – and now offers significant long-term value.
Since the advent of Covid-19, the federal government has allocated nearly $ 4.5 trillion in spending on direct payments to individuals, improved unemployment, loans to small businesses and other forms of financial assistance – with more likely to come, as detailed in President Biden’s proposed $ 1.9. a trillion release package. While deficit spending is necessary for the long-term health of the economy, it also has the potential for inflation. In the last four years alone, the national debt has risen by about $ 7.6 trillion to $ 27 trillion.
To hedge against this kind of volatility, many investors grab bitcoin, which by its nature, is impermeable to inflation. Only 21 million bitcoins can exist, due to a condition in its source code. According to the law of supply and demand, that makes bitcoin a limited – and demanded – asset.
At the same time, increased regulations, better infrastructure and access to financial institutions – like Loyalty – that hold investor money have made bitcoin investments as safe as owning bonds and commodities like gold, which is also used to balance portfolios .
When gold rose between 2001 and 2011, this was largely due to the end of the tight monetary policy era due to the Fed lowering the fund rate targets. In 2012, the value of gold fell when inflationary fears subsided and the stock market increased.
Then you might ask: If bitcoin is volatile, how can it also guard against volatility? While bitcoin has experienced dramatic price changes over the years, much of that move can be attributed to asset class novelty and lack of regulation. Today, that is changing with recently enacted regulations along with the entry of major players, including macro funds, large hedge funds and life insurance companies, no doubt being drawn to the more stable environment. While price fluctuations will not disappear completely, we consider bitcoin as a long-term value proposition that should only grow over time.
With large organizations now bullish on bitcoin, investors may have a different concern – that they have effectively lost the boat. But history proves otherwise. Amazon is one of the most valuable companies in the world. In each of Amazon’s first 12 years, the stock’s high price was, on average, more than double its open price. But investing in Amazon over the past 12 years has continued to be very profitable.
When investing in an emerging asset class, there is always an inflow point – a moment where there is enough infrastructure to allow for wider adoption while still leaving room for appreciation. We believe we are at that moment with bitcoin.
The strongest indicator of bitcoin’s value is the pure size of its market capitalization – more than $ 600 billion. If we were to look at that through the prism of the S&P 500, it would make bitcoin the top 10 company in the world, having gone from nothing to half a trillion in just 12 years. Only a few companies, like Facebook and Tesla, have grown that fast.
When the world spirals out of control, it is natural to want to invest in something tangible, like gold. But bitcoin is valuable because – not in spite of – its intangibles. You can always mine for more gold. Bitcoin is unique among assets as the first store of value in the world where rising demand does not completely affect supply.