Is it a good idea to invest in bitcoins in 2021? (in spanish: ¿Es buena idea invertir en bitcoins en 2021?)This article explores 2 specific reasons why the answer is probably yes, and why the current Bitcoin price bull run is probably just getting started. But first, some history and a macro overview.
In 2017, Bitcoin had an incredible year, with a bull run that rewarded investors with a 1,350 percent return and an all-time high of €20,000 as an early Christmas present. In 2018, however, the picture was very different. Bitcoin lost more than 70 percent of its value, dropping from €14,000 on January 1 to less than €4,000 to close the year. The bear market would last throughout 2018 and 2019, and many companies related to the sector did not survive the prolonged crypto winter.
In early 2020, Bitcoin investors started the year in a bullish mood. The bear market had ended and Bitcoiners were expecting the third Bitcoin halving in May this year to provide the catalyst for a new bull run. The COVID-19 pandemic was a black swan event that soon poured cold water on bull market hopes. In March, the price of Bitcoin quickly plummeted to just under €4,000, a drop of more than 50% as investors in all markets turned to cash as the reality of the pandemic approached.
Despite the heavy losses in March and the chaotic Covid response by governments, global markets have recovered exceptionally well since then. Equity markets have responded positively to the news that vaccines are on the way. The Dow Jones Industrial Average and S&P 500 closed at new highs on Monday following yesterday's news that the new Modern vaccine is 94.5% effective.
While stocks are rising, the price of gold is stalling on the vaccine news, dropping to the €1860 level. Much to the chagrin of the gold bug and notorious Bitcoin skeptic Peter Schiff, it is Bitcoin that is once again outperforming all other asset classes this month. If you're wondering 'should you invest in Bitcoin', here are five reasons why it might make sense.
Bitcoin adoption is accelerating
Global Bitcoin adoption is accelerating. For example, the number of users of the popular Blockchain wallet has steadily increased throughout 2020 and has accelerated since early November. The company's data shows an increase from 43 million to more than 58 million wallets in the last twelve months.
However, wallet numbers are only part of the story. The number of people holding BTC in their own wallets is dwarfed by retail investors happy to leave their Bitcoin with a custodian like Coinbase, Square's Cash App or PayPal.
Square promotes Bitcoin investing on equal footing with investing in stocks.
The number of people buying BTC through the Cash App, for example, continues to grow. Cash App's Bitcoin revenue soared to 1.63 billion, with a gross profit of €32 million in Q3 2020 , a 1,000% increase over the same period last year.
Driven by the growth of the Cash app, PayPal has accelerated its crypto rollout and now allows all eligible customers in the U.S. to buy, sell and hold Bitcoin, Ether, Bitcoin Cash and Litecoin. Cryptocurrency purchases are limited to €20,000 per week, double the €10,000 originally announced due to unprecedented user demand, and there are no crypto transaction fees on PayPal until the end of the year. Starting in early 2021, PayPal's 26 million merchants will be able to accept crypto as a payment method using a bitcoin euro calculator (calculadora bitcoin euro).
If the current Bitcoin bull market continues to heat up, there are plenty of on-ramps for retail and institutional buyers to chase that momentum. If that demand continues to grow, it could lead to the same explosive price movements seen in previous Bitcoin cycles.
Bitcoin's value proposition is perfectly suited to the macroclimate.
Bitcoin was born out of the 2009 global financial crisis. Against a backdrop of bank failures, government bailouts and quantitative easing, Bitcoin quietly unfolded in the wild where everyone ignored it except a small but growing group of idealists.
A decade later, we are witnessing a new financial crisis with more bailouts, historically low interest rates and further quantitative easing.
There is a growing awareness from both individuals and businesses about Bitcoin's unique value proposition and where Bitcoin stands in this macro environment. Earlier this year, leading macro investor Paul Tudor Jones said that Bitcoin in 2020 reminds him of the role gold played in the 1970s. In a report titled The Great Currency Inflation , he explains why his Tudor BVI fund has invested 1-2% of its assets in Bitcoin futures contracts.
"COVID-19 is a one-of-a-kind virus that has triggered a unique policy response globally," says Tudor Jones. "It has happened with such speed that even a market veteran like me was speechless. Since February alone, a global total of $3.9 trillion (6.6% of global GDP) has been magically created through quantitative easing. We are witnessing the Great Monetary Inflation (GMI), an unprecedented expansion of all forms of money unlike anything the developed world has seen."
Satoshi Nakamoto seems to have designed Bitcoin as a possible solution to this scenario. In 2009, shortly after the release of the Bitcoin white paper, the pseudonymous creator of Bitcoin posted on an Internet forum. He states : "The root of the problem with conventional currency is all the trust that is required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is littered with breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction of reserve."
Similarly, Real Vision CEO Raoul Pal says that as central banks embrace quantitative easing, the stage is set for hard assets like Bitcoin and gold to perform well. "Huge quantitative easing in fiat money meets harder money that automatically adjusts quantitatively. Bitcoin wins. This is one of the best setups in any asset class I have ever witnessed ... technical, fundamental, fund flow and plumbing."
The contrast between central bank quantitative easing and an ever-expanding money supply versus the quantitative tightening of Bitcoin's third halving is stark. The supply of fiat currency is growing rapidly, while the Bitcoin scarcity narrative is growing in importance.
Money printing has worked its way into asset prices, meaning stocks, bonds and real estate prices have soared to unprecedented levels. A small reallocation of even 1% from other asset classes to Bitcoin would represent capital inflows greater than Bitcoin's current market capitalization.