The bullish case for Bitcoin is far from obvious, but it is compelling enough that a significant majority of the biggest cryptocurrency traders now move most of the money they earn from altcoin trading into Bitcoin for a long term HODL.
An ideal store of value is durable, portable, fungible, verifiable, divisible, scarce, and it must be censorship resistant. The last one is a new attribute that has become increasingly important; "How difficult is it for an external party, such as a corporation or state, to prevent the owner of the good from keeping and using it." Bitcoin excels at censorship resistance, and across the other attributes listed above as well, allowing it to compete with modern ($USD) and ancient (gold) monetary goods.
The invention of Bitcoin created of a new scarce digital good. Only 21 million bitcoins will ever be mined and most of these have already been mined, with 16.8 million bitcoins in circulation now.
The increase in purchasing power of Bitcoin creates fear of a “bubble,” implying that Bitcoin is grossly overvalued. There is some truth to this. The purchasing power of any monetary good is higher than can be justified by its use value alone. The price of a monetary good, $USD, gold, and Bitcoin all included, is not a reflection of how much it is moving around the marketplace (its "velocity"), but, rather, the price is a measure of how widely adopted it has become for the "role" of money. Bitcoin passes the use case test for “money” and this bodes well for Bitcoin investors holding it for the long haul.
Further evidence that Bitcoin is a good long term investment comes out of the view that Bitcoin’s valuation over time matches the shape of a classic “new technology hype cycle”. The earliest buyers in a hype cycle have an enthusiastic conviction about the transformative nature of the technology. As the number of new enthusiasts for the underlying technology investing during the first phase dwindles, buying switches over to speculators who want quick profits. Then, at some point, price drops rapidly, and the speculative fervor is replaced by bad press and fear that the technology was not transformative after all.
A stable price plateau forms where the original evangelists are joined by the speculators (the retail and institutional “early majority” investors) in accepting the pain of the crash and adopting a renewed appreciation for the fundamental value of the technology. That's where we are with Bitcoin right now. The current Bitcoin plateau could persist for a long time.
We may be entering a boring, stable low for Bitcoin. This new base sets the table for the next iteration of a repeating hype cycle as laypeople and institutional observers begin to see that the technology is here to stay and that investing in it is probably less risky than it seemed during the last crash phase of the hype cycling.
The next hype cycle and surge of Bitcoin's market cap will happen when the late majority starts investing in Bitcoin, increasing the total number of Bitcoin investors by perhaps 1000%. There is no sure way to tell when that will happen.
The final hype cycle driving up the value of bitcoin would be initiated when nation states start adding bitcoin to their foreign currency reserves. Bitcoin would have to go to $380,000 per coin to reach an equivalent market capitalization with gold. Many bitcoin investors believe that that is where we are going once we finish the final hype cycle.
Should you move all your altcoin profits into bitcoin and HODL? It seems likely that Bitcoin is still early in its adoption curve. But this article is just a starting point in trying to answer that question. Do your homework, study the science and history of hype cycles, and invest wisely.
By: BGN Editorial Staff