Many Americans remain skeptical of cryptocurrencies. According to a Pew Research survey, about 75% of adults who have heard of cryptocurrency do not believe it is safe or reliable. Additionally, about 12% stated they had no familiarity or knowledge of crypto at all.
Bitcoin, for the amount of popularity it has received over the last few years, is still surrounded by uncertainty as it isn't categorized as a security nor is it a standard currency or tangible asset. Instead, it's categorized by many as what is commonly referred to as a "digital asset." Digital assets are still somewhat new in terms of investing and their future is clouded by ongoing concerns of government intervention and regulation.
However, there are reasons to be optimistic about Bitcoin's future growth potential. Below are some reasons to believe the asset will continue to appreciate long-term as well as the downside risks to be aware of.
Finite Supply
Because Bitcoin is viewed by many as a store of value, similar to gold or silver, bulls argue that the fixed supply makes it more resistant to inflation which has eroded fiat currencies. Bitcoin's supply is capped at 21 million coins. The scarcity is similar to precious metals like gold, which have limited quantities available in the world. Scarcity, coupled with economic trends, may drive up demand which can lead to significant price appreciation over time.
Institutional ownership
Major companies, institutions, and governments have shown interest and invested in Bitcoin, lending to its credibility as a legitimate asset class. The involvement of hedge funds and companies like Tesla in cryptocurrencies is a good sign of confidence in the assets long-term viability. It's important to note however that during periods of market-wide declines, the involvement of such institutions could negatively impact the price as well. If these institutions require operating capital or funds to cover other deteriorating positions, they may be forced to liquidate their crypto holdings sparking a fear induced sell-off.
Speed
Blockchain continues to evolve. Layer-2 solutions like the Lightning Network aim to make Bitcoin faster and more practical for daily transactions. Layer-2 solutions are protocols built on top of an existing blockchain to address some of its limitations such as scalability, high transaction costs and slow confirmation times. They aim to improve the efficiency and capacity of blockchain networks while maintaining the security guarantees of the underlying blockchain.
Accessibility
Bitcoin is accessible to anyone with internet worldwide, giving it the potential to be used as a global digital currency. As the world economy continues to evolve and become even more intertwined through advancement and innovation, the internet has become readily accessible for most people. According to some studies, about 93% of Americans and 64% of adults globally have internet access, and that number continues to increase due to projects such as Elon Musk's Starlink.
Supply and Demand
Bitcoin’s protocol involves periodic “halving” events that reduce the supply of new coins. This reduces the growth rate of supply, effecting the supply & demand dynamics, and can push the price higher as seen in previous halving cycles. *The next halving event is in about 7 months*.
As illustrated in the chart, you can see there is potential for a regression to the mean for Bitcoin before it's next halving date. If Bitcoin behaves as the stock market does, a correction would typically be in order before making new highs. Analysts believe there's potential for significant growth over the next five years, per Barrons.com
Innovation
The ecosystem for crypto continues to expand with innovations in financial products, services, and infrastructure. If it continues to evolve and gain popularity, the demand and value of crypto will rise with it.
Bear Thesis
Critics argue that Bitcoin has no tangible benefits and that it has extreme price volatility, lack of intrinsic value, and ongoing regulatory uncertainties which make it too risky of an asset. The potential for price manipulation and the limited adoption for everyday transactions to date also stand out as reasons to be skeptical. While Bitcoin has gained significant attention and adoption, skeptics caution against its role as a stable store of value or a widely accepted medium of exchange.
Other Considerations
Though not as prominent as Bitcoin, other cryptocurrencies that have a finite supply and halving schedules similar to Bitcoin include Litecoin, Bitcoin Cash and BitcoinSV. Litecoin has been described by many cryptocurrency experts as the "silver" to Bitcoin's "gold."
Whether investing in Bitcoin is right for you depends on your specific financial situation. Although there are reasons to be optimistic about the cryptocurrency's long-term future, there still exists a fair amount of uncertainty regarding its everyday use and classification as a store of value. As such, you should speak with a financial planner or advisor to determine if diversifying into cryptocurrency could be beneficial to you.
*See financial disclaimer on home page*
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