Questioning the Timeliness of Bitcoin Purchase Following its Soaring to a Record-Breaking Peak
Cryptocurrency (BTC dropping by 1.87%) is once again in the limelight as it surpasses its previous record high of around $73,800, now hovering at approximately $88,000. This digital currency is showing a growing optimism, with part of it stemming from a newly-elected presidential administration perceived as being supportive of crypto.
Though the details of any potential policies to aid Bitcoin are yet to be revealed, remarks from President-elect Donald Trump and individuals like billionaire Elon Musk seem favorable towards digital money, including Bitcoin.
However, the worth of Bitcoin can plummet just as swiftly as it rises, considering its current peak. Given this situation, is it beneficial to invest now?
Institutional funds have revolutionized Bitcoin
The last few years have witnessed a surge in Bitcoin's legitimacy, largely due to the massive influx of funds from institutional investors during this period. As more institutions invest, Bitcoin gains credibility, leading other institutions to join the market, and so on - creating a positive feedback loop.
This year served as a turning point for this cycle, with the Securities and Exchange Commission (SEC) granting approval for spot Bitcoin exchange-traded funds (ETFs) following extensive lobbying from entities like Ark Invest's Cathie Wood and BlackRock's Larry Fink. These ETFs offer simpler access to Bitcoin for both institutional and retail investors. They provide liquidity and contribute to market stability, two essential factors for most institutional investors.
Research conducted by EY, one of the Big Four accounting firms, revealed that 60% of institutional investors held at least 1% of their portfolio in digital assets. The majority of participants planned to expand their investments.
This indicates a positive outlook for Bitcoin. It seems that at the very least, it has demonstrated its resilience and won't cease to exist or lose significance, as some skeptics once thought. If the trend continues with more financial managers gaining or increasing their exposure, Bitcoin's value is likely to continue growing substantially.
A plethora of potential uses
Bitcoin was conceived as a digital equivalent to cash. Due to the high cost of Bitcoin transactions, however, it has not been successful as digital currency.
Currently, Bitcoin is viewed as digital gold because it is inherently valuable due to its limited supply. Similar to gold, but unlike the latter, Bitcoin is easily stored. The worth of all gold in Fort Knox can be stored on a thumb drive. Consequently, it serves as an excellent store of value.
Given these features, Bitcoin could be utilized by nations to safeguard their wealth and support their currencies by maintaining gold reserves, similar to how the US and other nations store gold. It could strengthen corporate balance sheets, providing investors with substantial returns with near-liquidity of cash. It could facilitate cross-border transactions with ease, and this list of potential uses continues.
If any of these use cases gain traction, it could result in significant price increases.
There are challenges, but Bitcoin endures
There are real threats to Bitcoin, including regulatory concerns and fierce competition from several altcoins, or alternative cryptocurrencies, regarded as more functional than Bitcoin. Although these altcoins may offer more utility, there is always a compromise. Here, more utility might mean compromising on aspects like security. In my professional opinion, Bitcoin has entrenched itself as the primary digital currency and is unlikely to be dethroned. There may be room for a few winners, but I don't foresee Bitcoin being left out of the top tier.
It's hard to determine whether now is the ideal time to invest. As the saying goes, "time in the market" outperforms "timing the market," and there is no way to foresee where Bitcoin's future is heading in the short term. Bitcoin's long-term value is what matters most, and the present moment is just as favorable as any other. However, if you have a more risk-averse investing strategy or are nearing retirement, you might want to consider more secure, stable investment options.
In light of the increasing interest from institutional investors, such as massive allocations from entities like Ark Invest and BlackRock, and the SEC's approval of Bitcoin ETFs, it might be beneficial for some to consider investing in Bitcoin due to its potential for continued growth. Given the limited supply of Bitcoin, it functions as a digital form of gold, offering the benefits of easy storage and high value.
