Is it too Late to Buy Bitcoin? Should I Invest Bitcoin Now 2020?

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Probably the most frequently asked question by those outside the crypto community who are interested in crypto is this; am I too late to buy Bitcoin? It’s a great issue. Historically, Bitcoin has seen one of the greatest bull runs that it is likely to ever see. However, as we look at the price of Bitcoin over time, going from just dollars to $20,000.00 per Bitcoin, this concern is well founded.

It’s history, as an asset, is very interesting-like our buyers in years ago. The market, however, is very different, as is the shareholder environment.

I can’t tell you what to do because I don’t know your financial situation and level of sophistication, but I’m going to share the decision-making process I’ve been through to make the decision to buy Bitcoin. I’ll go through some of the factors I’ve evaluated, like my expected return on Bitcoin vs. other potential investments, my thoughts on the current state of basics and techniques, as well as what makes the entry level attractive.

Every investment should be measured against the anticipated risk / reward (RR) and the universe of available investments.

Our RR estimation is arbitrary, of course, but we are going to make some cautious assumptions. Bitcoin is very unstable and in short and longer-term periods it goes up and down. You can’t get great reward without great risk / volatility. Bitcoin survives every year, the network gets bigger, and Bitcoin gets stronger. @josh rager shared this awesome Twitter log graph that clearly displays these long-term cycles (3 completed cycles, we’re in the 4th cycle) and the corresponding returns of each previous cycle.

We can see that the periods have been going on from 245 days to 1200 days— the pattern seems to be getting longer. Nonetheless, the returns for each process compress from 319K% (yes, 1,000) to 12K%. Extrapolating this curve takes us to a return of 2400 million over a 1200-day period off the $3 K bottom of Bitcoin in early 2019. Exactly this way it is extremely unlikely to play out, but I tend to think that the longer-term pattern will play out, albeit with a period of flattening.

https://i.imgur.com/YYoBdgm.png

Unless we actually extrapolate the upward trajectory of Bitcoin’s log-scale trend line from 2011, this will bring us to a $58 K Bitcoin price by the end of 2020.

It reflects a return of approximately 400 percent over 18 months. Of course, as I described in the graph, the process is elongating, but I will use this return of 400 percent over 18 months to be cautious with our RR estimate.

We looked at the upside potential, what about the downside?

We thought about what might go well, now let’s think about what might go wrong. Worst case scenarios for Bitcoin here could be a massive regulatory crackdown, a financial market collapse, a large-scale hack, or some kind of software bug that has a major impact on Bitcoin price

I will categorize these as demand shocks, and I’m going to go through them individually, but while they might cause a huge price drawdown, these factors would be transitory, and Bitcoin would recover. Of course, the fundamental context could shift (Central Banks tightening up?) or a technologically superior coin could take share, and Bitcoin might theoretically go to zero in these situations, but I don’t see this happening quickly.

https://i.imgur.com/44UC0dW.png

Let’s run through each of these risk factors quickly, beginning with a regulatory climate transition.

I think it’s unlikely that a big regulatory crackdown in the US or globally— the first regulators would have done so by now, which leads me to my second point — would affect too many investors and the regulators ‘ task is to protect shareholders.

Several smaller exchanges have been shut down by US regulators and, more recently, they seem to have pressured Binance, the world’s largest crypto exchange, into opening a US branch to cater to American consumers with proper KYC / AML. I’d love to see more oversight for shadier exchanges and ICOs, but at this stage I don’t see a major crackdown. I assume regulators are focused on improving the regulations of KYC and AML, and I think they should do exactly what they should do. There are cities and countries that support the cryptocurrency ecosystem, mostly in Europe

For mention a few, more prominent US companies including Twitter, Fidelity, eTrade, CME, TD Ameritrade, and ICE Exchange. Do I think regulators would block the cryptocurrency of Facebook, Libra? Sure they could and it would be a negative in the near term, but I don’t think it would derail the long-term trajectory of Bitcoin.

Bitcoin has been with us for 10 years now, the popular internet currency.

It recently sold a unit for twenty thousand dollars, falling back to a low of $3,132 USD, having started with no cost at all.  Bitcoin has done this many times before and at a higher low every time it hits its low price.It went from $1 USD to $30 USD in 2011 and down to $2 USD in a few months ‘ time.

A few years later, again, it went from the same $2 USD to $260 USD. Then he took a break down at $60 USD and then took off at $1,163 USD like a rocket ship.

Soon thereafter, Bitcoin fell back to a low of $155 USD, from where it entered a three-year bull market that took us to the peak of $19,716 at the end of 2018. The recent $3,132 USD low may be this new market cycle’s lowest. If this is not the case, then the lowest price is probably not far away. No one knows for sure where the price is going to be in the future, and that applies to all markets, not just Bitcoin.

Nonetheless, no matter how far down the price of Bitcoin goes, if you think it can go higher, then making a bullish bet on its recovery could pay off beautifully.

You may have noted above that the way the price of Bitcoin moves is a trend.

It’s close to the “Wall St. Cheat Sheet” map, which is fascinating. The price of Bitcoin corresponds with consumer sentiment, reflecting human emotions such as uncertainty, excitement, and euphoria, as well as fear, denial, capitulation, and returning to disbelief.

https://i.imgur.com/SLNNHab.png

Nonetheless, there is one major difference between Bitcoin and the map above. It has always been “bottomed” at a much higher price than previous tops, usually touching the all-time high above.

The accompanying map, known as the “Bitcoin Hype Period Map,” does a great job of showing how Bitcoin is going through the different market phases.

Bitcoin is a risky asset that would have a significant impact on a financial market crash.

This century’s easy monetary policy can be characterized by the old saying, a rising tide raises all ships. We’ll find out who’s swimming naked when we’re having a financial markets catastrophe. We’re in the longest expansion in U.S. history and I’ve begun to notice comments from high-profile investors, bureaucrats, and execs that “this time it’s different” and we’ve figured out the magic formula for endless economic expansion. I’m 100 percent sure we’re going to have a financial market crash and Bitcoin’s going to be affected. The extent of Bitcoin’s effect depends in part on how much power is used when it occurs. Bitcoin tends to fall a little less than stocks from what I’ve seen in the past and recover faster but Bitcoin is too young to be checked in a stock market crash.

Based on my optimistic assumptions, Bitcoin has an extremely positive risk / return profile, which is very difficult to find in today’s efficient markets

In 2008, credit default swaps had identical asymmetric RR profiles for those who saw or read “The Big Short.” To be cautious, I’ll say the downside is 100 percent for the risk reward estimate of Bitcoin, you’ll lose the entire investment, and an upside scenario of 400 million for the next year and a quarter. We now need to hamper our chances of these occurring in order to get our expected return. This is also very subjective, but for the upside scenario, I think it’s better than even. I assume it’s 80:20, but it’s 60:40 to be moderate. It gives us a chance modified Bitcoin’s expected return of 200 percent over 18 months on Bitcoin, conservatively. But don’t go throwing in this your life savings because it’s an “expected,” not a guaranteed return rate. Owning a single asset does not have a diversification advantage, and the downside scenario, which still has reasonably high chances of coming to fruition, could destroy your investment portfolio!

That all sounds good, but how high can the price of Bitcoin really go?

Although I try not to spend too much time dreaming about it, this is a nice one to remember.

Technically, Bitcoin’s price is not capped. Note, price is only a supply and demand feature, and supply is limited to 21 million. We should, however, come up with some reasonable price targets and ceilings.

One cautious and quite likely scenario: the primary use case for Bitcoin is “virtual gold” and with this result the market becomes fully saturated. Gold’s total market capitalization is about $7.7 trillion. Since Bitcoin can only serve Gold’s value store and investment purposes, we find that the market cap of Gold outside jewelry and industrial uses is about $3 trillion. If Bitcoin took a moderate 25% share of this amount, its market cap will hit $750 billion, and Bitcoin’s price would be around $35,700, with all 21 million mined. When investors see the benefit of Bitcoin’s lower inflation rate and higher salesability relative to Gold, then it can fairly be concluded that Bitcoin may have a higher market share, say 75%. If this is the case, then the market cap for Bitcoin would be $2.25 Trillion, and the price of a single Bitcoin would be $107,000, with all 21 million mined.

There are other well-supported theories that theorize that the market cap for Bitcoin could cross trillions of dollars into the 10’s. I feel confident at the moment to describe the price target of $35k-100k

https://i.imgur.com/WmA01Zh.jpg

Bitcoin as a valuable store and digital gold

Over the years, several different groups of people around the world have treated gold as an item of interest. It is important to note that gold has no quality in itself-it is only a piece of bright metal. The value comes from the (somewhat perplexing) fact that everyone has always decided that it has value, which makes it worthwhile. The reason they chose gold as opposed to other objects is important-gold has certain characteristics that make it a better (as is commonly known)’ store of value’ than other items:

For one, it’s rare, meaning it has limited supply (there’s only a certain amount of gold in the world-if it’s too plentiful everyone would have it and then it’s not worth it). It is maleable (it can be melted and turned into smaller units, i.e. coins, and interestingly, when you split it into smaller pieces, the price per unit does not change, unlike items like diamonds). It’s stable and not degrading, it’s easy to recognize and, most importantly, it’s hard to falsify.

Bitcoin, as it turns out, has all these same features, and more. It has limited supply (there is and will ever be a specific amount of Bitcoin). It can be made into smaller units without losing unit value (1 Bitcoin= 100,000,000 Satoshis-the smallest unit in which a Bitcoin can be broken down to, similar to the cents in a dollar or pennies in a pound; this is also why one can buy less than one Bitcoin at a time)

Its technology makes it very stable, it won’t degrade, and it’s impossible to counterfeit. On top of that, and unlike gold, in a matter of minutes, you can transfer Bitcoin to any place on earth, no matter how large or small. That’s why a lot of people say Bitcoin is not just virtual gold, it’s a better gold edition.

Could Bitcoin be the only currency we’re using?

YES: Alternatives to today’s currencies are required. In my opinion, the emerging technology’s usual growing pains and bitcoin will prevail. The cryptocurrency plays a long-term role in society as a decentralized, alternative currency— functioning both as a payment mechanism and as a value shop, in countries where the fiat currency is volatile or subject to manipulation.

Next, there is an alternative to fiat currency, the need and demand. Statistics from the World Economic Outlook of the International Monetary Fund show that 50% of the world’s population resides in one of 98 countries that have had at least one year in the past 10 years— because Bitcoin existed — when inflation was above 10%.

In countries with high inflation, or otherwise unstable fiat currency, people can not trust that the fiat currency backed by the government will hold its value, and traditionally seek an alternative such as gold. I think Bitcoin is going to fill this need in the future.

Digital payment firms like Visa, Mastercard, PayPal and Alipay are working to digitize money to flush out bribery and promote global financial inclusion. But even they depend on the underlying fiat currency’s stability. When bitcoin emerges as an alternative to volatile fiat currencies, I think you’re going to be able to make a payment in bitcoin on a credit card, just as you can in dollars, euros, yen and other currencies today.

Bitcoin allows safe, arm-length transactions between two unknown parties, the bar required to operate as a system of payment. And Bitcoin is decentralized and open-source, allowing it to evolve and organically adapt to the needs of use.

And investing in Bitcoin is too late?

Well less than 0.3 percent of the world’s population owns some Bitcoin, plus Blockchain technology (which Bitcoin pioneered) is gaining attention worldwide with colleges offering courses on the topic and big technology companies.

Another thing to note is that compared to the massive growth of Bitcoin, the price reductions are clearly pale in comparison, especially if you look at the percentages rather than the cost.

I understand that the price is the first thing people will notice when investing in Bitcoin, but when it comes to price investment, it’s not the only metric you can use to judge the growth of assets.

You need to look at both the percentage gains and the periods of time during which the highs and lows occur.

 

 

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