It’s easy to fall into the trap of thinking that it’s too late to buy Bitcoin (BTC) – that the biggest gains are in the rearview mirror.
But people have said and thought that often through Bitcoin’s history and been wrong again and again.
Such moments often come after the Bitcoin price peaks and falls, with folks thinking that the most recent peak is as high as Bitcoin will ever go and that it will never go that high again. “It’s too late,” they say.
The most recent Bitcoin peak was November 10 of last year, when it reached an all-time high of $68,789.63. Since then, BTC has dropped as low as $35,000, most recently trading around the $40,000 level (some 40% below that all-time high).
We heard pessimists tout that Bitcoin’s best days are behind it when Bitcoin peaked at about $63,500 in April 2021, then fell below $30,000. We heard it when Bitcoin peaked at about $19,500 in December 2017, then slid down to about $3,200. We heard it when Bitcoin peaked at just under $1,200 in December 2013, then bottomed out at about $200.
And those pessimists are just as wrong now as they were on all those previous occasions. Because after each peak and decline, Bitcoin only rose higher.
It’s not too late. In fact, it’s still early.
At this point, are you going to see gains of 50,000% from Bitcoin? Probably not. But over the next few years, Bitcoin could easily hit $250,000 – a gain of more than 500%, or more than 6X from the current price.
Some long-term Bitcoin predictions are much higher, pointing to $500,000 or even $1 million.
Now, you might be asking yourself why – what could possibly make the Bitcoin price go higher? Why is Bitcoin a good investment now?
1. Use in Global Trade
One of the biggest likely Bitcoin catalysts is its potential to facilitate global trade – to become a global reserve currency like the U.S. dollar.
It makes sense when you think about it. Nations unhappy with the economic power the U.S. gets from having the primary reserve currency have been talking about a replacement for years. But using a different fiat currency just anoints a new nation with special economic power.
The decentralized nature of Bitcoin – no nation, company, or central bank controls it – make it the perfect solution. It would not have to be the only reserve currency, but Bitcoin could be a popular option for nations wishing to avoid using fiat currencies.
To be serviceable as a reserve currency, the Bitcoin price would need to reach the $500,000 to $1 million range. A recent VanEck report suggests use as a reserve currency could someday push the price of Bitcoin as high as $4.2 million.
One of the chief differences between Bitcoin and fiat currencies like the U.S. dollar is the cap on its supply.
Since Bitcoin was launched in 2009, the M2 money supply has rocketed from $8.271 trillion to $21.811 trillion, a whopping 164% increase in just 13 years. By contrast, only 21 million bitcoins will ever be created, and 19 million already have been created. The rate of creation is designed to drop every four years, giving Bitcoin an ever-slowing rate of inflation.
Right now, dollar inflation in the U.S. is at a 40-year high, but it’s always eating away at your wealth. Something that cost $100 in 1990 costs $220 today – a 120% increase.
That makes owning Bitcoin a great hedge against inflation.
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3. Bitcoin Is King
Bitcoin was the very first cryptocurrency. That “first-mover advantage” has helped it remain the most dominant crypto, even with some 19,000 competitors.
Bitcoin still makes up about 40% of the value of all cryptos combined – double the value of No. 2 Ethereum (ETH). And now, at age 13, Bitcoin has also become “antifragile,” which is the idea that the longer something endures, the more likely it is to continue to survive and thrive.
Finally, the first-mover advantage means Bitcoin benefits from the “network effect,” in which the utility of a network grows as the number of users grows. The increasing utility attracts still more users. So, Bitcoin is here to stay.
4. It’s the Most Secure Network
Bitcoin has by far the most secure network in crypto. The vast energy used to mine Bitcoin is also what prevents it from being easily hacked. And while concerns remain over the degree to which Bitcoin mining contributes to carbon emissions, more and more mining companies are committing to using 100% renewable energy.
5. It Keeps Getting Better
Critics say Bitcoin is an old and outdated technology destined to be left behind for newer, more innovative crypto projects. They’re wrong.
For one thing, other cryptocurrencies lack Bitcoin’s level of decentralization and security. But Bitcoin tech is not standing still, either.
The Segwit upgrade in 2017 allowed more transactions to fit in each block. Last year’s Taproot upgrade made transactions faster and more efficient, which is always a good thing. But Taproot also made it possible for Bitcoin to implement smart contracts, the feature that has made so many crypto innovations possible, from NFTs (non-fungible tokens) to DAOs (decentralized autonomous organizations) to DeFi (decentralized finance).
Meanwhile, work on the Lightning Network continues. Lightning is a Layer-2 technology that allows transactions to happen off the blockchain, making Bitcoin much faster, much more efficient, and infinitely scalable.
6. True Decentralization
As pointed out above, the fact that no one controls Bitcoin could well prove attractive to nations in search of a neutral global reserve currency. But Bitcoin’s decentralized nature also has benefits for individuals.
It can’t be seized by a hostile government as long as you keep in a private wallet (not on an exchange) to which only you know the private key.
Companies that create and issue cryptocurrencies often have the power to make changes to the code or even freeze or seize assets.
7. It’s a 21st Century Store of Value
Bitcoin has many of the qualities of gold, the traditional store of value investment. That’s why Bitcoin is often called “digital gold.” It’s scarce, hard to mine, has a limited supply, can be used as money, and is not controlled by any single entity.
But Bitcoin has advantages in that it can be more easily stored and moved than gold and is easier to keep secure. And Bitcoin’s gains have been stunning.
If you start with Bitcoin at $0.01 in 2009 (it was actually less than a penny for a while in the early days), the CAGR (compound annual growth rate) over the past 13 years is more than 200%.
8. The Smart Money Is Getting on Board
Over the past few years, we’ve seen more billionaires and other high-net-worth investors open positions in Bitcoin. They see it as a new asset class with the potential for market-beating gains as well as an opportunity to diversify their portfolios. The trend appears to be accelerating, which will feed demand and help push the Bitcoin price even higher.
According to an Ernst & Young survey late last year, 36% of hedge fund managers with AUM of $10 billion or more said they were likely to increase their exposure to crypto in 2022.
One thing that could further accelerate big money into Bitcoin is the arrival of comprehensive regulations, which appears to be on the near horizon now.
Regulations will reduce risk, giving hedge funds and institutional investors the confidence to expand their Bitcoin holdings.
9. Big Finance Is Getting on Board
JPMorgan Chase CEO Jamie Dimon has repeatedly trashed Bitcoin since 2014. But over the past couple of years, the Wall Street giant has warmed up to Bitcoin.
Last year, JPMorgan agreed to make Bitcoin and other cryptos available to clients, following similar moves by Morgan Stanley and Goldman Sachs. U.S. Bank, State Street, Bank of New York Mellon, and Northern Trust have all announced plans to offer custodial services for Bitcoin.
Other big financial institutions are also hopping on the Bitcoin bandwagon. Visa Inc. has formed partnerships with more than 65 crypto companies to create crypto-linked credit cards (usually rewards cards that pay in crypto). PayPal offers Bitcoin to its customers. Fidelity Investments has been trying to win approval from the SEC for a Bitcoin ETF in the U.S. and just this morning announced that retirement plan holders will soon be able to put bitcoin into their 401(k)s.
Institutional adoption on this scale suggests Bitcoin is not only here to stay but is on the cusp of a major growth cycle.
10. Nations Are Getting on Board
Investors need to keep in mind that Bitcoin adoption is not just happening in Western countries but all over the world. In fact, some developing nations are racing ahead. El Salvador made Bitcoin legal tender last year, which means it can be used for any transaction.
Hyperinflation has driven Bitcoin use in places like Venezuela, Argentina, South Sudan, Zimbabwe, and Nigeria. Problem-riddled banking infrastructure has made peer-to-peer payments popular throughout Africa, with Bitcoin making up an increasing share of that activity. Bitcoin has also proven a popular option in Africa as well as Latin America for sending cheap and fast remittance payments.
Even with all that, it’s estimated that just 300 million people on the planet currently own any Bitcoin, which is just 3.8% of the global population of 7.9 billion. That’s a huge amount of untapped demand – demand that will feed a higher Bitcoin price.
That makes Bitcoin a must-have for any crypto portfolio.
Advisory Board Member, American Institute for Crypto Investors
Follow me on Twitter @DavidGZeiler.