Making a Case for Bitcoin Investors
Trillions in fiat currency have been printed since February 2020 in response to the global impact of coronavirus on economies worldwide. Most of us realize inflation is bound to come after such an unprecedented expansion of every form of money, unlike anything the world has ever seen. Prices will go up because:
- If people have more money all at once, they spend it. Retailers will have to raise prices or run out of products.
- Retailers that run out will try to replenish. This puts the producers in the same position to either raise prices or have shortages.
Having more money is not the same as having more wealth. Inflation reduces the purchasing power of money, which results in a loss. Those with wealth begin looking for ways to protect their purchasing power by buying “safe haven” assets when inflation is on the horizon. A compelling argument for owning Bitcoin is accelerated by Covid-19 and the coming digitization of currency around the world.
Bitcoin vs. Gold
Bitcoin investors recognize that the asset has high returns, high volatility, and weak correlations with other assets – much like that of gold. Bitcoin is immune to inflation from over-printing because its supply algorithm is determined in its code. There is no entity that can cause more coins to be created for any reason.
While financial experts have confirmed Bitcoin’s capability as a hedging asset and safe haven for other assets, there is a number who warn against it. Bitcoin investors or would-be investors are advised to do their own research, because many so-called experts are clueless about Bitcoin, often lumping it into the same bin as altcoins.
Gold is the traditional inflation hedge and has always been used to store value in times of turmoil. We can see that reflected in its current price, as generations of savers around the world turn to it again as a tangible, liquid asset. Bitcoin and gold have a lot in common, including the fact that those investing in both assets are in some ways opting out of the traditional financial system as they try to directly own tangible wealth.
Most acknowledge that the price of gold will rise a lot, but bitcoin will explode because it is scarce, secure, easy to buy, can be taken anywhere, and is quickly converted back to fiat in seconds.
Who is Investing in Bitcoin?
Bitcoin is a relatively new asset being considered by investors today. Having only recently been created, in 2009 after the 2008 financial crisis, Bitcoin investors already are seeing a new financial crisis emerge. Countries around the world are seeing inflation increase, and bitcoin is being used as both a store of value to hedge against rising prices and currency devaluation, but also as a way to get money out of the country.
Younger bitcoin investors are well aware that the asset, unlike gold, can easily transcend borders and be converted into fiat money when the time is right. The largest group of bitcoin investors is currently between the ages of 25 and 44, representing a whopping 73% of buyers. However, the percent of financial and investment services buying bitcoin is on the rise and is doubles that of any other group.
Historical Bitcoin Performance in USD
Source: Coin Dance Bitcoin Statistics July 23, 2020
While those investing in Bitcoin may also be investing in gold – the opposite is not often true. Bitcoin investors tend to look at gold as the ancient relic it is while realizing more flexibility is needed in today’s world. While the learning curve for crypto is a bit steeper than for gold, the reasons investors buy gold is the same reason bitcoin is bought. What gold does, bitcoin can do – and more.
Digital Currency Coming Soon
Countries around the world are now drawing up plans for digital currency to replace physical money. The coronavirus has acted as somewhat of a catalyst and market infrastructure projects are popping up to help financial markets function better. New utility tokens, security tokens, and stable coins will emerge as new digital assets. Bitcoin investors have already mastered the use of digital currency and will be ahead of the pack as the world moves closer to becoming a cashless society.