One of the most fascinating and lucrative investment opportunities of the last ten years has been the Bitcoin growth. Bitcoin has outperformed all traditional financial assets, including the S&P 500 and Nasdaq Composite, despite their solid returns. In 2013, a $1,000 Bitcoin investment would have grown to an incredible $168,000 by 2023. This post will examine the causes of Bitcoin growth, its present state, and the reasons it is still a desirable investment.
Bitcoin’s Unique Genesis
Bitcoin growth’s journey began around 15 years ago, in the wake of the Great Recession. Unlike traditional financial assets that often start with institutional adoption, Bitcoin’s early proponents were primarily computer scientists and individuals who valued privacy and autonomy above all else. This unique characteristic is rooted in its creation as a response to the turmoil caused by the subprime mortgage crisis, massive government bailouts, and unprecedented economic stimulus efforts. Satoshi Nakamoto, the pseudonymous founder, introduced Bitcoin as a novel form of money that operated independently of central authorities.
Historically an Investment Vehicle
Though Bitcoin was conceived as a decentralized digital currency, it has predominantly been viewed as an investment vehicle rather than a medium of exchange. The cryptocurrency’s network limitations, capable of processing only five transactions per second, have raised questions about its practicality for everyday transactions. Nonetheless, the soaring value of Bitcoin cannot be denied. It has demonstrated an unparalleled capacity for price appreciation, consistently reaching higher highs, even though it remains an extremely volatile asset. Presently, it hovers at about 50% below its all-time high reached in November 2021.
Growing Infrastructure and Adoption
Bitcoin growth extends beyond price appreciation. A robust ecosystem of products and services has emerged to support its use. Specialized businesses offer Bitcoin-based individual retirement accounts and loans, further expanding its utility. Notable financial platforms like Coinbase Global and PayPal Holdings allow individuals and institutions to buy, sell, and hold Bitcoin. Additionally, there is a proliferation of Bitcoin-focused payment companies, and many well-known businesses now accept Bitcoin as a form of payment. Large corporations and billionaire fund managers have also included Bitcoin in their investment portfolios. Notably, El Salvador has gone a step further by adopting Bitcoin as legal tender within its borders, reflecting the growing interest and acceptance of the cryptocurrency.
While it is unrealistic to expect Bitcoin growth to continue its historical compound annual growth rate, which led to its meteoric rise, this doesn’t diminish its potential as an investment. With its current price well below its previous all-time high, there is an opportunity to buy the dip with the expectation of future price surges. Furthermore, a significant catalyst on the horizon is the likely approval by the Securities and Exchange Commission (SEC) of spot exchange-traded funds (ETFs) for Bitcoin. This approval, viewed as inevitable by industry experts, could attract substantial institutional capital to the cryptocurrency market, potentially driving Bitcoin’s value even higher.
Key Reasons to Invest in Bitcoin
1. Absolute Scarcity
One of the most notable characteristics of Bitcoin is its hardcoded supply cap of 21 million coins. One of the main causes of Bitcoin’s price increase is its fixed supply. Because of the inability of the supply to meet the increasing demand, prices rise. This stands in stark contrast to fiat currencies like the US dollar and the euro, which are always depreciating due to inflation and ongoing money printing. Bitcoin is completely unique, making it a valuable hedge against inflation and currency depreciation.
2. Support from Influential Figures
Bitcoin’s adoption has expanded beyond its original community of computer scientists and privacy advocates. Prominent business figures, such as Michael Saylor, founder of MicroStrategy, and Jack Dorsey, founder of Block, have publicly expressed their bullish outlook on Bitcoin. These influential figures have allocated significant amounts of capital to Bitcoin and hold it on their corporate balance sheets. Renowned fund managers like Bill Miller and Paul Tudor Jones have also added Bitcoin to their personal investment portfolios. Additionally, Cathie Wood, founder of Ark Invest, has set an ambitious price target for Bitcoin, projecting a substantial increase in value by 2030.
3. Near-Term Catalysts
Bitcoin’s immediate future is marked by several potential catalysts. The anticipation of approval for Bitcoin spot ETFs has already driven the cryptocurrency’s price up. These ETFs could unlock substantial inflows of institutional capital into Bitcoin. The upcoming halving event, scheduled for April 2024, is historically associated with a bullish price trend, both leading up to and following the event. The event reduces Bitcoin’s inflation rate by half, further enhancing its scarcity. Additionally, the possibility of the Federal Reserve cutting interest rates in 2024 could create a favorable environment for risk assets like Bitcoin.
Bitcoin growth from its creation in response to the Great Recession to becoming a global asset with an astronomical rise in value is a testament to its resilience and unique characteristics. While its Bitcoin growth rate may not be sustainable in the future, Bitcoin continues to offer a compelling investment opportunity. Its absolute scarcity, the support it receives from influential figures, and the presence of imminent catalysts all contribute to its attractiveness as an investment. Whether you are a seasoned investor or new to the cryptocurrency space, Bitcoin’s role in the financial landscape is worth considering for diversification and potential long-term Bitcoin growth.