Why should we invest in Bitcoin?
Do you often hear about the new asset class of crypto assets but do not yet know why you maybe should invest in it? Then this may be the right article for you. This article guides you through some important aspects that an investor can benefit from when investing in Bitcoin or other crypto assets. Just stick with us; you might gain market insights and you might be happy in the end that you read everything we share here with you about our perspective on the crypto market.
Author: Tobias Rethmeyer, Jan Spörer
We will show you why we think it might be reasonable to invest in crypto assets. In addition, we hypothesize that the crypto market points upwards over the next years, especially with regard to Bitcoin. After eleven years, there are plenty of opportunities that exist in the market to invest in crypto assets, from direct investments to securitized offerings and derivative instruments, all of them offering exposure to the potentially surging crypto prices. Finally, we will explain why we think it might make sense to invest in this market, meaning that we will give a first overview of the opportunities available in the traditional as well as digital financial markets that allow essentially everyone to participate in the crypto market.
Why invest in Bitcoin?
Let us start with the question of why to invest in the crypto asset market. This article focuses on Bitcoin because it is the most famous crypto asset, and we believe it has the most sustainable long-term upside potential.
Bitcoin is often referred to as digital gold. The analogy to gold stems from its surprisingly similar characteristics. Bitcoin’s first-mover advantage and the resulting network effects make it desirable as a store of value. Just as it took gold a long time to become accepted as a store of value, Bitcoin is currently in a phase of gaining broader popularity and acceptance. Bitcoin’s value lies in its decentralized nature and its limited inflation potential. Just like gold, Bitcoin has a limited supply. The Bitcoin software limits the amount of newly created Bitcoin per year. Taking these properties together, we get an asset that is desired and at the same time limited, and therefore scarce. Bitcoin’s anti-inflationary properties are “designed” into its software protocol. Therefore, the supply of Bitcoin is predictable. The maximum number of Bitcoin that will ever be mined is 21 million (with 21e6 being the scientific notation of this number) and we know that the last Bitcoin will probably be mined in the year 2140. Therefore, the behavior of Bitcoin is comparable to gold in many ways . However, Bitcoin is even more predictable than gold, for instance regarding its inflation rate, which is shown in figure 1 below.
Figure 1: Bitcoin supply vs. inflation rate (Source: https://bitcoinblockhalf.com/)
As we have seen, Bitcoin’s core value drivers are the same as those of gold. Thus, the market is likely to value Bitcoin with similar methods that we use for gold. One of those methods is the stock-to-flow model. The stock-to-flow of a commodity is the ratio between the stock (i.e., the presently available and usable amount of a commodity) and the flow (i.e., the newly mined amount of a commodity per year). Currently, there are still a lot of risks priced in the Bitcoin market that are not likely to persist in the near future. Namely, those risks are a system failure, successful hacking attacks, disappearance of blockchains, or that Bitcoin will be prohibited by governments. Nevertheless, those influences on the Bitcoin price will decrease, as they already did in the past. Then, the market will become more efficient and the price will develop towards a more realistic valuation on Bitcoins.
Another aspect why we believe that the Bitcoin price will increase soon is that there was a halving event earlier this year. A halving reduces the amount of Bitcoin that is mined every year. The current behavior of the Bitcoin price is similar to the behavior it showed after the last three halvings, which led to an increase of Bitcoin’s valuation of more than +200%. On these events the mining activity decreases, but due to high press coverings, the overall awareness of the asset is increased, making Bitcoins more visible and the additional awareness of its benefits push the Bitcoin price to new heights. The last halving event was in May 2020, which means that it is likely that the BTC price will probably reach new all-time heights within the next 6–12 months. Bitcoin shows after the 3rd halving already upward tendencies similar to those after previous halvings, as you can see in figure 2.
Figure 2: Bitcoin price development (Source: own research)
Overall, Bitcoin as digital gold is basically the warm sun that keeps the crypto market up and running, still uncorrelated to other asset classes, leading the growing crypto market into new spheres and offering a shield against inflation as well as the low-interest environment.
And now?
This distribution is valid only for a typical investor, meaning that you, in particular, might have other needs requiring other investment approaches. Companies like 21e6 can help you to become educated within and receive a structured overview of the crypto market to find the best investments. Should you not be convinced that you must invest into Bitcoin today rather than tomorrow, there is one more great reason. It is tax free after a holding period of one year. This should be an exceptionally promising reason to invest in BTC today.
About 21e6 Capital AG
21e6 Capital is a Swiss investment advisor, connecting professional investors with optimal crypto investment products. 21e6 Capital has analyzed over 1,000 crypto funds across the world and condensed them into a selection that can yield crypto-exposure with minimized downside risk. Backed by a highly experienced team of crypto and finance experts with in-depth knowledge in digital assets and DLT, 21e6 Capital created a unique quantamental strategy that is aimed at achieving crypto-like returns while minimizing risk and volatility to global equity levels. The 21e6 Capital team builds upon strong academic roots with a track record of leading crypto asset and decentralized finance publications and research, ensuring state-of-the-art crypto investment solutions for financial industry professionals.
Remarks
Should you now be interested in investing in crypto assets and want to learn more about the manifold possibilities in the market, please do not hesitate and contact us via our website or just send us an email at team@21e6.io. We happily share a short presentation about us and how we see the market. In addition, we can schedule an appointment to share a more in-depth market analysis so that you can understand the crypto market better as well as take more educated investment decisions.
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Are you interested in more information about the crypto market and want to invest in crypto assets? Then, do not hesitate to contact us! Find out more about us on our website, write us an email (team@21e6.io), or follow us on LinkedIn. You can also leave your information here and we will send you more information about us and how we work.
References:
https://cvj.ch/invest/das-bitcoin-halving-bisherige-auswirkungen-auf-den-kurs/
https://medium.com/@100trillionUSD/bitcoin-stock-to-flow-cross-asset-model-50d260feed12
