Prepare for the Bitcoin Surge: Strategic Positioning Tips
In the forever-changing landscape of investment opportunities, the search for the best asset continues. Much speculation stems from Bitcoin since its last bull run in 2021, especially looking to 2025. The amount of US dollars getting exchanged for Bitcoin continues to increase, and the potential to seize stellar gains in the next bull run is hard to get past.
The Bitcoin protocol's coin issuance remains unshaken by macroeconomic developments, as designed. The asset's volatility continues to weed out the ‘weak hands’ from existing Bitcoin holders, as the price slips and crawls sideways, leaving only hardcore holders.
This marks the fourth Bitcoin cycle since its inception in 2009. We find ourselves in the midst of the longest bear market at the time of this writing, on the brink of entering the fourth bitcoin bull run, likely to peak in 2025. Peaks in price have occurred approximately every four years, and this has happened in each of the previous three bull runs so far throughout Bitcoin's history. This trend appears on track to make it a four-for-four by 2025, in terms of reaching new price heights.
Looking beyond price behavior, in this article, we will address why Bitcoin needs to be considered separately from other digital assets, and we will uncover its unique value proposition. Also, this article will provide a detailed understanding of why it continues to gain adoption and market share in the digital asset space while other digital assets have faced headwinds since the start of the 2022 bear market.
Bitcoin's Bright Decade Ahead
Record-high global debt numbers and U.S. federal interest rates give a gloom-and-doom scenario for the future of the dollar-based currency system. Inflation and money printing continue to debase the value of savings held in U.S. dollars on a global scale. Just how much the U.S. dollar can diminish in terms of purchasing power remains to be seen.
In a less bleak scenario, some key indicators paint a rosy picture for the next decade in Bitcoin. According to Adamant Research, the amount of wallets that hold Bitcoin without selling or transferring has been increasing. In other words, strong hands.
Data from Santiment also indicates that the bitcoin whales, the people controlling the oldest coins in the highest quantities, are waiting for higher prices and not selling. This phenomenon is either correlated with the general selling behavior, or they are holding to their positions because they think bitcoin is undervalued.
How to Invest in Companies That Have Non-Trivial Exposure to Bitcoin
Do a thorough due diligence. Companies in the Bitcoin space have a limited track record. Do an in-depth dig into its people, plans, and operations. If you feel you do not have the skill, consider reaching out to a crypto analyst and performing due diligence on these professionals as well. If you are going to take a mild risk with the information that you have, consider a cautious amount of what will become your financial exposure to the asset.
In the Bitcoin landscape, first-mover advantage is overrated. Even if you are late to the party, go for a company with know-how, integrity, and longevity in the space, even if it's brief. Since the ecosystem is still in the infrastructure phase, try to consider the skill level of its engineers.
Opt for geographically diversified strategies. As polarization continues to grow, and Bitcoin continues to get more controversial in political spheres, it would be wise to choose companies that have operations in multiple countries or who have an agile and international team that deals with the operations themselves. Also, consider how companies that require deep ties with regulated entities such as banks can suffer political shocks more severely.
Do not forget about timing. Innovative ideas and technologies are important, but successful investing also requires considering the timing of your investment. Just because something has the potential to be valuable in the long run doesn't mean it will generate returns in the short term. As a matter of fact, Bitcoin usually sheds a big percentage of its value during bear markets. Consider sustainable growth and long-term profitability when evaluating investments, even in the hyper-dynamic world of cryptocurrencies like Bitcoin.
Bitcoin's Rise as a Modern Value Storage Mechanism
Investing in an asset for its long-term value may not appear groundbreaking. We have always tried allocating our funds to the best-performing asset for the long term, something that preserves its worth over time or even increases it. However, we didn't have digital scarcity like we now have with Bitcoin, and traditional assets have undergone changes. Considering this, the following macroeconomic developments need to be accounted for.
Inflation remains a concern in 2023, with a peak at 9.1% in 2022, the highest in four decades. The ongoing quantitative easing to manage high public debt levels suggests this trend may continue. This has driven investors to seek new options for preserving their wealth, leading them to discover Bitcoin, a liquid, provably scarce asset that serves as an effective savings tool.
The bonds are now in a bearish cycle. Until global debt levels are a lot lower, inflation-adjusted returns will not come back for many years, which leaves the 60/40 portfolio struggling as a hedge for inflation. This is a shock for risk-averse investors globally, and this means revisiting the long-term investment strategies of banks and other large holders of fixed-income securities.
The real estate market is evolving as a value storage mechanism. With banks seeking higher yields on deposits and enduring decades of low-interest rates, real estate has become heavily debt-dependent. Considering the ongoing central bank purchases of mortgage-backed securities to prevent a potential recession, it appears somehow unfair to put Bitcoin in the same tier as real estate as a reliable long-term hedge against inflation.
Concentrate Solely on Bitcoin Among All Cryptocurrencies
Whether Bitcoin is being transacted or used as a store of value doesn't really matter in terms of network effect, because either way, it means more adoption of the asset.
Distinctions need to be set when examining Bitcoin closely compared to other altcoins. Bitcoin and the broader crypto world are different. VC funds tend to create hype around projects through investment rounds that have no proven inherent value and usually result in pump-and-dump schemes. Recent incidents, like the FTX scandal, have shown us that.
Bitcoin´s high reliability as a monetary good is rooted in its redundancy. In the context of blockchain technology, redundancy refers to the replication of data or information across multiple nodes (computers) in the network. In other words, it is a peer-to-peer network that cannot be censored, seized, or reversed. The history of transactions can be accessed across thousands of copies of the Bitcoin ledger stored worldwide.
So, while the cryptocurrency ecosystem can influence Bitcoin's price, it's important to remember that the Bitcoin network's reliability as a monetary asset surpasses that of the entire crypto ecosystem.
Through the years, Bitcoin volatility has generated fear, uncertainty, and doubt (FUD) repeatedly across bearish timeframes, even after very profitable bull markets. We can learn from this to not dwell on speculation about why Bitcoin is really valuable. Its true intrinsic value can be located in its long-term store of value. Using it as a savings mechanism is key in its evolution of becoming a money. This is the reason why it was originally designed by Satoshi Nakamoto.
Bitcoin's Enduring Supremacy: A Closer Examination
The creation of Bitcoin during times of financial, and technological necessity gave it an advantage that has made its dominance in the crypto market undisputable. Since Bitcoin is currently the most decentralized and secure monetary network compared to all other digital assets, a newer blockchain and digital asset that attempts to improve Bitcoin as a monetary good will have to differentiate itself. The only way of doing it is by sacrificing one of the three properties that constitute the Blockchain trilemma (security, scalability, and decentralization), facing a potential trade-off.
According to this trilemma, it's difficult for a blockchain to excel in all three aspects simultaneously. For instance, if it prioritizes scalability by aiming to process more transactions per second, it might do so at the expense of decentralization or security.
Considering this, we expect less reliable altcoins such as Ethereum, Ripple, and Cardano to lose against a stronger monetary network like Bitcoin. We believe the majority of altcoins in the space are vastly inferior from an engineering perspective compared to Bitcoin. The overwhelming network effect, solid track record, possibilities of autonomous ownership, and anti-reversibility features that the Bitcoin protocol has to offer to make it the preferred choice for storing wealth in the entire digital asset ecosystem.
Investing in the Bitcoin Protocol, Not Just the Businesses
To further grasp the importance of Bitcoin as a monetary tool, consider this. For once, we are given the opportunity to invest in the actual Bitcoin protocol rather than the businesses built on top of it, unlike the internet boom of the 90s. Back then, if you wanted to invest in the internet, the only way was through investing in startups building on top of the TCP/IP stack, of which there were hundreds, making it harder to see big gains, as we can see now.
We believe owning Bitcoin is comparable to owning a piece of digital land in the near-to-be most utilized digital protocol, or similar to being able to buy undeveloped land on Manhattan Island at the start of the Industrial Revolution. Time-wise, it is the opportunity of a lifetime.
Buying into the actual operational backbone itself (through buying Bitcoin or fractions of it called satoshis), especially during the infrastructure phase, should be the focus of investors. Unless you have the proper skill set that allows you to forecast the future performance of Bitcoin companies, we suggest first focusing on the protocol.
Building a Position in Bitcoin
Traditional investment assets face difficulties in keeping up with modern, digital competitors like Bitcoin in the age of decentralized digital finance. This has led to experts studying Bitcoin´s returns since 2009.
Regarding the most effective way to capitalize on Bitcoin's volatility, investors wondered if it is better to invest a lump sum amount of dollars or buy smaller, fixed amounts of Bitcoin regularly instead (this practice is called dollar-cost averaging or DCA). It has been proven that a lump sum investment strategy could yield up to 75% higher profit than DCA.
The lump sum method will require more resilience since there won't be a possibility to buy Bitcoin at lower prices. We suggest choosing the method that best aligns with your financial life situation and staying invested for the long term.
Bonus: I Want to Buy Bitcoin. How Do I Hold?
So you want to buy Bitcoin. How do you hold it securely? After going through the critical elements of Bitcoin, custody emerges as the paramount concern. When it comes to safeguarding your Bitcoin, holding and custodying it is often the hardest and most important part.
The golden rule is taking it off exchanges and keeping it in self-custody. We recommend using a cold, hardware wallet with a 24-word seed phrase. Popular choices like Trezor prove to be reliable choices. But here's the kicker: remember to write your seed phrase on paper and to store it in a secure place, and never, ever digitize those 12 words or exhibit them.
For an added layer of security, contemplate the use of a metal plate for engraving your seed phrase, which will safeguard it against hazards like house fires or floods. If you're looking for an alternative to a hardware wallet without the associated costs, consider Muun wallet—a user-friendly, non-custodial option.