Lets talk about Bitcoin
Crypto is everywhere, the marmite of the investing world.
You need to have an opinion on Crypto these days if you want to avoid being an outcast. Nobody wants to be the one being shunned at the water cooler. Not having a 2-sentence quip on Crypto puts you in the same bracket as those lunatics following soccer who say, 'Na, I don't really support any team; I just like to watch'. These are people you can't be seen to affiliate with.
After 2017, we saw the crypto winter, where the entire space fell nearly 90%. Again, in March 2020, we saw Bitcoin lose half its value over a 2-day period and most recently, we have witnessed the crypto world crash once again as bitcoin fell from highs of $65,000 to $30,000 a coin.
There are multiple reasons for the most recent sell-off. China banned the use of cryptocurrencies for financial institutions. Other countries might be considering tighter regulation, particularly as cryptos become the currency of choice for ransomware hackers. Telsa stopped accepting Bitcoin as payment for vehicles, and Binance, a popular crypto exchange, is currently under probe by the justice department and the IRS. All valid reasons for concern. Now investors fear that there is no telling when the selling might stop, given that there is no true intrinsic value in the crypto space.
(Apologies, I have an endless supply of bitcoin memes)
My opinion: there are too many investors willing to buy it at a price far above $0 for this 'going to zero' argument to make sense. Not every financial asset will hold tangible intrinsic value. Take gold for instance, a 10 Trillion-dollar market built on socially constructed value; the belief that this will be worth more in the future than it is today.
My bull case for Bitcoin is probably somewhat different to the Bitcoin Ultras of the world. The bitcoin true believers will tell you that bitcoin is more than an asset. It is the only monetary asset that survives and thrives – the cockroach in the financial nuclear winter of money printing, societal collapse and government intrusion.
Don't get me wrong, the narrative is very compelling in a 'rage against the machine' sort of way but I fail to see any possible scenario where we all move to a decentralised world of the people, where governments politely step aside and the entire financial system as we know it is dissolve.
But just because I am not entirely sold on the most bullish bitcoin scenarios doesn't mean that I see no utility. I believe Bitcoin is a truly amazing breakthrough for the financial architecture of the world that will see more and more adaption from the institutional players in the years ahead.
You now have large investment banks like Citi bank coming out as bullish on bitcoin, Invesco setting up crypto custodian arms and the likes of PayPal setting up wallets. The more this happens, the more you will see the real institutional money being pushed into this space. The recent market environment has function as a catalyst for change. High equity valuations and limited upside in bonds are forcing investors to look deeper into the potential of alternative asset classes such as bitcoin.
In short, there is undoubtedly some significant regulatory hurdles ahead, and the 'Bitcoin as a currency replacement' argument still seems far-fetched to me. With that said, I believe it is a financial asset that is here to stay; continued adaption from the institutional space could well see demand run higher, but don't be fooled. Bitcoin is a speculative asset that will see mind-boggling volatility for some time to come. If you are looking to invest in the crypto space, do your research, start small and HODL.