2020: Bitcoin rocketed itself back to stardom: how far can it go?
Bitcoin gained essentially 301% in 2020 and continues to rise. Below, you’ll find my brief thoughts on Bitcoin’s value in 2020 and ahead.
2020.
It’s been a chaotic year for just about everything except cryptocurrencies, of which Bitcoin and Ether have experienced the most gains. In a future post, I’ll be covering the key drivers of Ether’s continued growth in 2020 and how those could evolve going forward. Here, however, I’d like to focus on Bitcoin.
In 2020 alone, Bitcoin went from $7,160 a coin on January 1st to $29,388.94 on December 31st. Before accounting for volatility, that’s an ROI of just over 410%. With volatility in the mix, meaning, once its rapid swings downward and upward are considered, that ROI becomes 301%, which is far above and beyond any traditional asset or commodity achieved this year.
So why now?
Why the explosive growth in a world where almost everything’s been halted at one time or another due to the spread of COVID-19(and most industries are still being affected by it)?
In my mind, it all boils down to Bitcoin’s most basic value proposition. It’s the world’s first decentralized currency (cryptocurrency) that has a provably and perpetually limited supply and isn’t controlled by any single government or organization. Instead, users called miners who put skin-in-the-game by paying for expensive hardware to determine its security and continued functionality. Furthermore, anyone who owns a Bitcoin or even a fraction of a Bitcoin truly owns it.
That’s indisputable.
Even if you have it on an exchange, you can take it off of the platform and hold it in your own secure “cold-storage” cryptocurrency wallet, most of which equates to highly secure USB drives.
Considering all of the above, and the fact that Bitcoin’s long-term ROI has continued to grow despite the occasional down year, in 2020, institutional investors began to buy-in in a major way. Leading the charge were Square and MicroStrategy as well as several powerful macro-investors, which if you didn’t already know, refers to an investor that allocates their capital based on perceived global trends and tends to put a lot of it into assets like gold, bonds, and currencies (and now Bitcoin).
Why have institutional investors begun to really buy into Bitcoin this year?
Driving the institutional interest has been the idea that Bitcoin truly could be a better alternative to gold and alongside this, a valuable treasury reserve asset that hasn’t been properly considered before. In a nutshell, a treasury reserve asset is simply one that a company publicly holds to insulate its balance sheet against any sort of economic downturn. Therefore, in the past, gold has quite possibly been the most popular one since it tends to move up during hard times.
Now, vocal new Bitcoin supporters such as Michael Saylor, Raoul Pal, and even representatives from several well-known financial institutions are hailing Bitcoin as a valuable hedge against economic volatility. Having followed all of their major opinions for the entire year, what I can say is the evidence for this case is two-fold. First, institutions believe that the concept of provable scarcity(digital scarcity) has compelling value. Next, especially now after Bitcoin’s end-of-year performance has come in, they likely believe that its’ long-term ROI will continue to outpace everything else in existence.
To me, it’s really that simple. Digital scarcity plus the powerful feedback loop that Bitcoin’s continued growth creates will lead to impressive new heights. With that, however, comes a caveat. While numerous crypto insiders and even outsiders continue to make lofty predictions about where Bitcoin’s price will go next, keep in mind that historically, in the short term, the bulk of these predictions prove false.
In short, think longer-term than most of the public figures seem to, because I can tell you, behind closed doors, most of them are doing the same. Over the course of its history, Bitcoin’s mean annual ROI is now 360%. That’s far and above, its most powerful metric for investors of all shapes and sizes and that’s the sort of growth I’ll be looking at as we head further into 2021.
Looking Ahead: What’s Next?
In a general sense, I see another bright year for Bitcoin, though its continued growth will be significantly tested as the global economy begins to truly recover from all of the lockdowns. Only time will tell exactly how resilient Bitcoin will be going forward in a global bull market, though its’ ROI and provable scarcity lend considerable credence towards a positive case in this respect.
Thanks for stopping in and allowing me to share my thoughts on the crypto space with you. You can always reach out to me here or on Twitter. Next time, in my crypto series, I’m going to flip to Ether as I’ve said above, and discuss what I feel is its’ most compelling value proposition heading into 2021. If you’d like a hint ahead of time, it relates to the idea that Ether is becoming a bond.
Who should I follow going into 2021 to get good insights on Bitcoin?
Having been reading about crypto since 2016 and working full-time in the space since 2018, I’ve made a considerable amount of connections and gained a considerable amount of insight on who consistently has the most valuable cases to share on crypto’s leading asset. If you’re just getting started, I recommend following Robert Breedlove, Anthony Pompliano, and Raoul Pal, all of whom do a great job of catering to both beginners and crypto-lifers alike. If you’re like me and you like to get a balanced view on each and every investment opportunity, check out what traditional investment sources are currently saying about Bitcoin as well, starting with Bloomberg’s crypto section on its website. Last but certainly not least, consider following the Norwegian Block Exchange, which I work for and which is aiming to be the world’s first fully regulated digital assets bank, out of Oslo, Norway.
Where do you get the basis for your case for Bitcoin?
That’s easy.
For the most part, I believe that it’s digital gold, i.e., a better gold with provable scarcity and real value behind it. On top of that, I’ve adopted Raoul Pal’s thesis on Bitcoin as a Life Raft, which you can find here.
Do you write anywhere else?
I’m the Head of Content at the Norwegian Block Exchange.
Disclaimer: None of the above is direct financial advice. Invest at your own risk and take all of my content as simply educational.
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