Leaping in at the Top

This article originally featured in the February 2021 issue of Connect.

Derek Hurst (Nagano)

Bitcoin’s meteoric rise during the past 10 years is hard both to overlook and to overstate. It has been far and away the best performing asset class of the past decade, with a staggering 8.9 million percent growth rate since 2009; its year-to-date growth in 2020 was 40 percent. (1) So, just in case you need it spelled out, that summarily beats the S&P 500 return. To give you some perspective, if you had bought a mere 100 bitcoins back in 2010 (at the time, this would have cost you approximately 80 US dollars), you would now have almost four million to your name.

However, we need to take a step back and put some of these numbers into perspective. Bitcoin’s current market cap, just north of 673 billion US dollars, (2) still makes it a shockingly small player in the otherwise saturated and gilded commodities market; gold’s market cap is just over 10 trillion dollars, (3) silver is a tenth of that at around one trillion, and oil is somewhere in the middle. Investors can take these numbers two ways: either Bitcoin is the definition of a small fish in a gigantic pond dominated by whales, or it is a leviathan of Lovecraftian proportions that has barely hatched from its egg. Personally, I am inclined toward the latter. The technology on which Bitcoin is constructed (blockchain) has far-reaching and, frankly, worrying potential to disrupt the famously insular global finance markets, regardless of whether Bitcoin itself actually performs over the long term. The question we need to grapple with now is whether it is still worth it to jump in at the all-time high and risk getting whipsawed by Bitcoin’s famous volatility—potentially leaving us holding a very heavy and risky bag—or sitting on the sidelines with a bag of popcorn, ever-inflating fiat currency, and a beer. There are solid arguments for both, but, if for no other reason than being “in” on the newest financial fad, I say we examine the bull case.

First and foremost, foreign investors in Japan often have few options in terms of making their money work for them. Bitcoin is different. Unlike traditional brokerage accounts, you don’t need to meet rigorous residency criteria in order to begin investing in the crypto markets, whether it be Bitcoin or anything else. The decentralized nature of the Bitcoin makes it much more difficult (at the moment, in any case) to regulate. Because of that, opening up a wallet with any one of the many cryptocurrency exchanges around the world is comparatively easier than going through a legacy broker.

Second, there’s the trust aspect, which, up until recently, has been on shaky ground. Although, things are changing fast. Both PayPal (PYPL) and Square (SQ) were the first two major firms to go in on Bitcoin and have recently expanded their offerings to include cryptocurrency, (4) making it easier and more accessible than ever to jump into the space. With Coinbase, the world’s largest cryptocurrency exchange, planning an initial public offering later this year, it’s clear crypto is becoming a mainstay on Wall Street. Every investment bank from Goldmann to Blackrock have now rebalanced their portfolios to include at least a bit of crypto; (5) even Warren Buffet is eyeing the digital currency. Institutional interest is there, and that should give investors true confidence in Bitcoin’s staying power.

Reason three is more speculative in nature, but, if we run just a bit of technical analysis, I think it’ll soon become clear Bitcoin’s continued dominance is all but assured. Back in December of 2014, Bitcoin rallied to an eye-watering 19,200 US dollars per coin, which, at the time, was an all-time high. Unfortunately, it soon came crashing back down to the four figures; but sure enough, at the end of 2020, driven by renewed hype and the aforementioned institutional interest, Bitcoin rallied back up to 14,000, then 19,000, later 25,000, and finally, an all-time high of 40,731 US dollars per coin in early January. It has since come corrected a bit, but when we draw lines and look at its rolling average, the sky looks like the limit. Some bulls are even setting their price targets over 500,000 US dollars per coin within five years.

We have no idea what the world will look like in 2025, much less a month from now, but I think it is clear that Bitcoin is here to stay. Quantitative easing by central banks around the world is going to continue to depreciate fiat currencies, and Bitcoin, along with other more traditional safe-havens like gold, are almost guaranteed to continue to shoot up. The difference with Bitcoin is that buying crypto has never been more accessible. If today’s price looks too high for you, ask yourself this one question: would you rather get in now, when you can easily buy even fractions of a Bitcoin, or ten years from now, when the price is a hundred times what it is today? Leaping in at the top may be scary for some, but for the investing astronauts, the moon is the only destination worth mentioning, and I’m pretty sure that’s where we’re headed.

Derek Hurst is not a financial professional, so his words are not intended to constitute investment advice. However, he is a passionate follower of investing, business, and tech who works and lives in Nagano.

Sources:
https://cnb.cx/3sDrBtv
https://yhoo.it/3o3dfyT
https://bit.ly/3qxMlkm
https://bit.ly/2XXc4Gy
https://bit.ly/3itkpeM