by Are you considering owning some Bitcoin? About two months ago, I wrote on piece on 7 reasons why you should not buy Bitcoin. Of course there are always two sides to a coin, or Bitcoin for that matter. Here are 9 reasons why you might consider owning some Bitcoin.
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Bitcoin Fills a Need
I used to think that Bitcoin was pretty pointless. After all, we can buy stuff with paper money, credit cards, or checks.
But Bitcoin actually does fill a need.
There are roughly 1.7 billion adults who do not have a bank account. Imagine how difficult it is to make large purchases like homes and cars, send money abroad, or make investments without a bank account.
Bitcoin grants access to anybody in the world. It is touted as the first truly global banking system. Essentially anybody can own Bitcoin, regardless of immigration status or credit history, with little to no preapproval needed.
This should prove to be extremely appealing to the many unbanked adults across the world and could revolutionize banking as we know it.
Bitcoin is Money without Borders
Let’s say you want to vacation in Japan. You would have to pay a fee to exchange U.S. dollars to Japanese Yen. If you come home with any unspent Yen, you would have to pay another fee to exchange the Yen back to U.S. dollars. All of this is inconvenient and wastes your time, energy, and money.
Imagine instead that you had a digital wallet with bitcoin. You were able to spend the Bitcoin freely in Japan, without the headaches of conversion rates and exchanging money.
Bitcoin transactions are not free. You will incur charges by using Bitcoin. However, as it becomes more widely adopted, I would imagine that fees could drop.
Bitcoin could also play a huge roles in the remittance industry.
A remittance is when a migrant worker or immigrant sends money back to their home country, either to friends or family. The United States is currently the largest source of international remittances in the world, sending a total of $56.3 billion in 2015.
Moneygram and Western Union are two of the largest remittance service providers. They can receive extremely high profit margins from their services. Western Union’s profit margins have been known to be as high as 28%.
Source: Wikipedia
Imagine if people instead used digital wallets to send Bitcoin to their family. Bitcoin transaction fees are currently as low as 1.5%. People would save an enormous amount of time and money.
Bitcoin has seen Significant Growth
There has been a significant amount of growth in bitcoin addresses with a balance. As more people buy it, and more companies accept it, I see some strong upside potential.
Institutional Investors are Buying Bitcoin
In Tesla’s 10-K for the year ending 12/31/20, it reported that it had invested an aggregate $1.5 billion in Bitcoin. It also reported that it expected to begin accepting Bitcoin as a form of payment in the near future on a limited basis.
MicroStrategy said it now owns about over 90,000 Bitcoins, which it bought for $2.816 billion at an average price of $24,063 per Bitcoin.
Companies are in the business of making money and returning profit to shareholders. They don’t invest their cash reserves in things they think will fall in value.
We have to ask ourselves, why are these companies investing billions of dollars in Bitcoin?
If I were to make such a huge investment, it would mean that I either have extreme confidence in the asset or I see huge growth potential.
Institutional investment is a huge positive sign for bitcoin. I would imagine that other companies will follow suit.
Bitcoin is Scarce
Scarcity is what tends to give something value.
Gold is valuable because it is scarce.
Bitcoin definitely fits the bill of being scarce. There are currently only about 18.6 million Bitcoin in circulation.
When all of the Bitcoins are mined, there will only be 21 million Bitcoin in circulation.
That means that unlike central banks, Bitcoin cannot continue to print coins and add to the money supply.
Many see Bitcoin as an asset that will continue to rise in value, whereas fiat currency like the U.S. dollar will continue to fall in value due to inflation.
Bitcoin is Seeing Wider Adoption
One of the biggest concerns with Bitcoin was that it would have no value if it were not widely accessible.
After all, if it’s hard to buy, and hard to sell, who would want to use it?
However, the barriers to using Bitcoin are increasingly being removed.
There are nearly 14,000 Bitcoin ATMs all over the world that can provide you instant access to Bitcoin.
In October 2020, Paypal announced that it would allow its U.S. users to sell, buy, and hold cryptocurrencies.
Paypal has over 300 million users worldwide, so this opens crypto access to a large amount of people.
It appears that it is only a matter of time before more banks and financial parties remove barriers to Bitcoin access.
Is Bitcoin Expensive?
Bitcoin crossed the $60,000 mark in March 2021. That sounds so expensive!
But think about it this way:
In 1985 a share of Apple could be had for 8 cents. It is valued at nearly $120 today.
In 2010, you could have bought a share of Tesla for $4. That same share would be valued at nearly $690 today.
Assets may seem expensive, but they probably seemed expensive on the way up.
Tesla probably seemed expensive at $100 a share, at $300 a share, but now it sits at $690 a share.
You can’t judge an asset solely on the price of one share. We need to investigate its market cap.
Is Bitcoin the next Digital Gold?
People are referring to Bitcoin as digital gold.
Physical gold required miners to extract it from the earth. Society decided to place value on physical gold because it was scarce and fungible.
Bitcoin requires miners to extract it as a reward for solving complex computations. As of today, society has decided to place value on Bitcoin because it is scarce and fungible. Sound familiar?
Gold has a market cap of about $10 trillion.
Bitcoin right now has a market cap of about $1 trillion.
The price of Bitcoin would have to climb 10X to reach the market cap of gold.
Do you think it’s possible? Only time will tell.
Another way to put Bitcoin’s market cap into perspective:
- Bitcoin’s market cap: About 1 trillion
- Biden’s Covid relief bill: $1.9 trillion. This is money that is essential printed “helicopter money”.
Think Bitcoin has more room to grow?
Bitcoin has Growth Potential
36% of small-medium business in the U.S. are accepting Bitcoin in 2020. Source: HSB
I think this a very optimistic number, but let’s say that it is true.
Now imagine if 50% of businesses started accepting Bitcoin. Then 75%. What do you think will happen to the price of Bitcoin?
There is extreme growth potential.
Because it is not yet accepted everywhere like Visa or Mastercard, that means that Bitcoin is still in its growth phase, with big upside potential.
Putting it All Together
Bitcoin certainly has many attractive features that may make it a worthy to fill a small portion of your portfolio:
- It fills a need
- It is money without borders
- It has seen significant growth
- It has seen huge institutional investment
- It is scarce
- It is seeing wider adoption
- It shouldn’t be judged solely on the price of one share
- It could be the next digital gold
- It has big growth potential
Even with all of its positive attributes, Bitcoin is still an extremely risky and volatile asset. No one knows exactly what the future will hold for Bitcoin.
Even Bitcoin.org says that “Bitcoin should be seen like a high risk asset, and you should never store money that you cannot afford to lose with Bitcoin.”
Do some more research before owning some Bitcoin. If you decide to dabble in Bitcoin, do so at your own risk. And don’t bet the whole farm!
Full disclosure: As of this writing, I hold a long position in Bitcoin.
