The Next Big Thing in Investing

Take a look at this chart:

Bitcoin and the crypto market are by far the best performing assets of 2020. And I think that there is a good chance this powerful growth will continue in 2021.

Smart money instead of speculators

One of the reasons is that this bull run is different compared to the 2017 bull run. Back then you had retail investors and speculators driving the price up to the stratosphere … and then it all crushed down.

But this time there is no media hype. And retail investors are still on the sidelines.

This bull run is led by so called “smart money”: wealthy investors, institutions and corporations. These people are not there for the quick buck. They are there to stay. They will hold their Bitcoin for the long run.

The best proof of that is that Bitcoin is currently leaving exchanges in record amounts. This means that investors buy Bitcoin and then they transfer it to their offline, secure wallets for long-term holding.

In 2020, nearly 500,000 Bitcoin have left crypto exchanges, suggesting a rise in custody over profit-booking. An opposite dynamic was evident during the 2017 and 2019 tops.

Corporate adoption

In August 2020 the first publicly traded company, Microstrategy, made Bitcoin its primary reserve asset to hedge against fiat inflation. They invested $425 million in Bitcoin.

This decision became an important stamp of institutional approval of the top crypto’s credentials as a mature, safe-haven asset.

A month ago Square, an online payments giant (founded by Jack Dorcey, the CEO of Twitter) followed suit and invested $50 million in Bitcoin.

And this is just the tip of the iceberg.

Now corporations know that it’s possible to invest in Bitcoin and get a legal and accounting stamp of approval. That is why it’s very likely that many private and public companies with huge piles of cash reserves will follow Microstrategy’s Bitcoin strategy.

This reminds me of Roger Bannister and his historic sub 4 minute mile run. On the May 6, 1954 he was the first human to run a mile under 4 minutes.

Bannister’s feat was trumpeted on front pages around the world. He had reached “one of man’s hitherto unattainable goals,” The New York Times declared.

But what happened next?

No longer held back by this psychological barrier, shortly tens and later hundreds of runners went under the barrier.

I think that something similar is happening with corporate Bitcoin investments right now. We needed to have the first company to do so and show that it’s possible. And now the floodgates are opened. So we can likely expect hundreds, thousands and maybe even millions of private and public companies all around the world to start investing in Bitcoin.

I personally am very, very conservative with my company cash reserves. I always held them in cash. But in 2020 I started to invest a portion of them in gold and digital gold – Bitcoin.

The reasons are very simple: unparalleled money printing, low interest rates, uncertainty.

You simply can not afford to keep your reserves in cash any more – if you do that they are losing 2 to 10% of their purchasing value every year. That is why you need a different store of value. And gold and Bitcoin are the prime candidates.

Technology adoption curve

Pretty much every revolutionary technology (like steam engine, railroads or internet) has the same adoption curve.

After the innovation there is a bubble where people think that the new tech will change the world overnight. Then comes the disillusionment, where the market cools off and starts to develop new business models. And then comes the real impact of the new tech in the real world.

In the case od the crypto market, the revolutionary tech is called the blockchain.

To understand the blockchain tech, imagine a spreadsheet (database) that is duplicated thousands of times across a network of computers. This network is designed to regularly update the spreadsheet and the records are public and verifiable. Since there’s no central location, it is almost impossible to hack since the info exists simultaneously in millions of places. This technology allows digital information to be distributed, but not copied and each individual piece of data can only have one owner.

And the most important thing is that the crypto market is not about Bitcoin. It’s about the blockchain tech. This tech allows for scores of new products and sevices to be developed.

Now let’s take a look at the adoption curve of internet technology (chart by Yahoo!finance):

And here is the chart of the crypto market that is practically copy/paste of the internet curve where the real impact is just starting.

And this is one of the main reasons why I invest heavily in the crypto market. I think that is has huge potential and there is a good chance for amazing returns when you invest in Bitcoin and especially business crypto projects. 

Bitcoin’s market capitalization is about $350 billion. And gold market cap is around $12 trillion ($12,000 billion).

This means that Bitcoin has a lot of room to grow and is so called asymmetric investment. This means that the potential profit is far greater than the downside loss.

The price of one Bitcoin (you don’t need to buy the entire coin, you can always buy a fraction) is currently around $18,000.

I think that there is a high likelihood that in the next year or two it could reach 30,000 to $50,000. That is why I like it as an investment.

But of course you need to be aware of the risks also. Bitcoin and the crypto market can be VERY volatile. It can go up or down by 20, 30 or even 40% in a matter of weeks. In February 2020 Bitcoin was at $10,000 and in March it went down do $5,000.

So, before you venture into this space make sure you are prepared to pay the price for great potential long-term gains. The price is high volatility. Ask yourself: if I buy now, will I be OK and will I HOLD if the prices go down 30%.