Opinion
The danger of jumping in front of a moving train is nothing when compared to the risk of being left behind by the Bitcoin boom.
When one’s pension fund increases by 12%, in a year, most are ecstatic; some may feel it is time to retire. Bitcoin traders would be disappointed with the recent rise to $60 000 per Bitcoin, bringing the 2021 return to 91% by March and a 1-year return to 900%.
So, what is Bitcoin, and which store stocks them? The cryptocurrency reached a new high of $60 000 during the aftermath of a pandemic? The reasons are few and far between.
Most pundits attribute the rise to the ‘digital gold’ thesis, believing Bitcoin is a store of value. Similar to gold; it is immune from interest rates, regulation, and a hedge against established asset classes.
Traditional investment houses, JP Morgan Chase and Morgan Stanley, are also getting in on the action together with PayPal and Square they are jumping on the Bitcoin bandwagon. In doing so, creating an air of credibility around cryptocurrency.
More importantly, generating public hype around Bitcoin resulting in investors switching their dollars for shiny Bitcoin.
The last major reason for Bitcoin rocket is the mix between low-interest rates, several stimulus cheques, and tons of FOMO among investors.
This fear of missing out encouraged retail and professional investors alike to the crypto space.
Conversely, the fear of a bubble lives on too. As the graph of Bitcoin’s price looks suspiciously like every other asset bubble in history. Bitcoin bulls will say “This time is different.” Yet as the legendary Sir John Templeton would say, “The four most dangerous words in investing are ‘This time it’s different’.”
However, if one is prepared to pay $60 000, meaning the demand and supply dynamics combine to create this price. Then the price is correct.
Nevertheless, this does not mean Bitcoin is valued correctly. An eternal debate could erupt between the bulls and the bears, but for efficiencies sake, the bear case is the following.
“Nothing goes up in a straight line.”
The rise of Reddit traders together with the ease of Robinhood has created a large retail investor base jumping from one investment to the next. The recent GameStop saga is the perfect example of strange price behavior caused by this new investor base. These traders have their sight set on Bitcoin and the price shows it.
The volatility of Bitcoin undermines its potential use as a store of value and a. It is unreasonable to expect institutional investors to place pension funds into an asset that moves 10% within one day.
The bears on Bitcoin will also point out regulation is looming around the globe. India is preparing a possible blanket ban on cryptocurrencies as China did and the US Senate are in discussions to impose stricter regulation on cryptocurrency. Hence, removing an appealing reason to buy Bitcoin.
Nevertheless, the most negative reason to own Bitcoin is not found on a computer screen, but rather in the air we breathe, the sun we see and the land we rely on. Bitcoin consumes more electricity than Argentina. If Bitcoin were its own country, it would be the 29th largest in terms of electricity usage.
The negative climate effect cannot be ignored as more institutional investors consider the ESG (Environmental, Social, and Corporate Governance) ratings of their portfolios.
The bears’ case on Bitcoin seems to outweigh the bulls. Conversely, the price indicates the bulls are winning.
Regardless of whether one falls on the bulls or beard side, Bitcoin cannot be ignored.
Bitcoin and cryptocurrencies are here to stay. They are creating wealth at numerous levels of the economy, from new retail traders to fintech startups, such as South Africa’s Luno.
Countries and large corporations, including Japan, Sweden, and Facebook plan to launch their digital currencies. Several Fortune 500 companies are converting a portion of their cash into Bitcoin.
So, should one cash in their pension and plow it all into Bitcoin? Most probably not.
But this may be the future, and no one wants to miss out on it.
And always “remember today is the tomorrow you worried about yesterday.” Dale Carnegie.
So, keep your eyes open and good luck to all the traders, investors and gamblers.
FAQ Bitcoin What is Bitcoin?
Bitcoin is the first cryptocurrency created in 2009 by an unknown individual.
A cryptocurrency?
Unlike traditional currencies, which are linked to a reserve bank and an economy, Bitcoin is completely unregulated and digital. Previously, to own Bitcoin, digital mining was required. Now one can easily buy their share of a Bitcoin via platforms such as Luno.
How does mining work?
Mining is the integral step in order to issue new coins. Bitcoin transactions are bundled together to create a block. For a block to be accepted, the creator (miner) of the block must prove they completed the work, “proof of work.” In other words, there is a puzzle (proof of work) solved by a computer running Bitcoin software. Since these puzzles require brute force together with trial and error, this action is referred to as mining. There are about 2.4 million Bitcoins left to be mined.
What are the other major cryptocurrencies?
Ethereum is the number two cryptocurrency in order of market capitalization. Others include Tether, XRP, and the popular Dogecoin.
What do Reddit, Robinhood, GameStop, and Bitcoin have in common?
Reddit is a social media platform where most young retail traders (everyday traders, the opposite of Wall Street) have discussed possible trades and other financial market jargon. Robinhood is the trading platform used by numerous of these traders. GameStop is a business in the USA which stock soared from $15 to $400 in January as a result of a short-squeeze and a large influx of retail traders. Bitcoin is viewed by several traders as the future or as an easy trade to make a quick profit, as a result, retail traders heavily trade Bitcoin.
What is Coinbase?
Coinbase is a secure platform to buy, hold and sell cryptocurrencies. Different from Robinhood as Coinbase can be used to transfer Bitcoin to others and purchase items. It is a pioneer in the crypto economy allowing people and businesses to transfer Bitcoin. In other words, Coinbase is a crypto wallet. Coinbase is the first crypto start-up to go be going public. It will IPO later this year via a direct public offering (not a SPAC as some may have expected) in New York City.
How much power does Bitcoin use?
There are several comparisons. It uses 10 times more electricity than Google, more electricity than Argentina or Bitcoin uses so much electricity, it would be the 29th largest country by consumption.
Do any countries currently have their digital currencies?
Yes, Ecuador, China, Singapore, and Senegal have launched their digital currencies. However, Estonia, Japan, Russia, the USA, and Sweden are looking to join the pack. Together with this Facebook, Walmart, JP Morgan, and Mitsubishi are looking into launching their cryptocurrencies.
Should you buy Bitcoin?
This question must be answered by you.
Country singer Kenny Rogers has some advice from the poker table: “You got to know when to hold ’em, Know when to fold ’em; know when to walk, And know when to run.”
