Should you acquire bitcoin in 2017?
I have been extensively researching bitcoin, altcoins, entrepreneurs, economists, investors, speculators, news sources – you name it, I’m on it. In this post, I give my humble opinion as to why I think it is a good idea to acquire bitcoin now. Take it for what it is, my opinion – and I’m sure you can find a whole lot of opposing views 🙂
Unstable global economy
The economic situation is unstable all over the world, but the value of bitcoin is not strongly correlated with either the stock market or national currencies. Bitcoin may in fact benefit from the collapse of the traditional economy. This means it could be a smart move to diversify some funds and acquire bitcoin. In the event of another collapse, similar to 2008, we could see an even worse situation given the increase in the debt. In the event of such a situation, traditional safe havens such as physical gold, will likely rise in value. However, bitcoin could have a significant role given – as a currency – is similar to gold, it is scarce, and it can’t be created from nothing. Consider that Bitcoin is more advanced, as it can be moved effortlessly to anywhere in the world. The worse the traditional economy gets, the better it is for bitcoin. This is why it makes sense for anyone to diversify a portion of their investment portfolio or savings budget into bitcoin.
Creation rate of new bitcoin has halved
In July 2016 the daily amount of new bitcoins created was halved from 3,600 bitcoins to 1,800 bitcoins. This is a fixed rule set in the Bitcoin protocol since the beginning and it activates approximately every 4 years. As a currency bitcoin is very different to currencies such as the dollar or euro – as they cannot be created out of thin air, the amount of bitcoins is predetermined and strictly regulated by the protocol itself. The maximum amount of bitcoins is 21 million and there will simply be no more. This absolute scarcity of bitcoins is a big reason why they are such a good investment. As use of Bitcoin increases, we can assume that the price of bitcoin will also increase. This causes no problem for using Bitcoin, since a single bitcoin is divisible to very small pieces. Euros or dollars are divisible to one hundredths (cents) while the smallest bitcoin unit is 0.00000001 bitcoins, called a satoshi.
Growth rate makes investing very tempting
The price development of bitcoin has repeated a similar pattern many times – an increase followed by a decrease, then becoming stabilized – only to increase again even higher. This is not proof the same pattern will repeat in the future, but the likelihood of it happening again is strong. The price graph now is very similar to what it has been right before the large price increases in the past. That is quite interesting. At the end of this particular week in bitcoin price trading, it is been a pretty good week. There has been volatility, and price has gained on aggregate to the $300 range – a pretty nice move for a long-term holding.
Additionally, the TCC auto-trader has been able to capitalize on the volatility that has accompanied this move, so essentially we’re winning on two counts. Exactly how things are going to play out over the next few days or weeks remains to be seen. Price seems to have settled into a bit of a sideways trading pattern, which makes things difficult to predict. Bitcoin price could breakout to the upside, and a return to the overarching bullish momentum – or we could see a downside break, and maybe a deeper correction than many would like to see. However – if a correction occurs, I will personally view it as another opportunity to acquire bitcoin at a lower price!
Those getting rid of cash are boosting bitcoin
More than a few in some parts of Europe are getting rid of cash, and the trend is increasing in many developed countries where digital payment methods are now being rapidly adopted. The digital revolution of money by traditional methods makes use easier, but it causes problems for privacy. We could be in danger of facing a time when everything we do is monitored. Bitcoin is an alternative that retains the features of cash – from a privacy perspective – and as attempts to become more cashless increases, so will the demand for cryptocurrencies – with bitcoin being the 500 lb. gorilla right now.
Bitcoin use is increasing rapidly worldwide
Understanding the anti-inflationary features of bitcoin is essential to understanding its price. Bitcoin’s price back in May 2016 was “only” about $450. In the weeks preceeding the new supply for mined blocks being halved in July 2016 – bitcoin’s price began to rise, breaking the $750 mark in mid June 2016. A lot of experts in the field predicted that bitcoin would break $1,000 in 2017 – well, we’ve already hit and surpassed that mark and it’s only May (as of this posting). And if a major event does unfold, such as a global recession – or a major company like Amazon announces that it will accept bitcoin – who knows. Those $5,000 or even $10,000 dollar predictions might not look so overzealous after all, and will make a decision to acquire bitcoin very smart indeed!
Scaling solutions in the near future
Bitcoin has been so popular that it is pushing the technical limitations of transaction processing. The Bitcoin network can only process a few transactions per second and the limit is being reached. I look at this as a positive problem because it signals great growth of Bitcoin, but it has sparked a ton of public discussion and it makes some question Bitcoin’s ability to evolve. Solutions do exist and are constantly being developed. If/when Bitcoin is upgraded with an update called Segregated Witness – the capacity of the Bitcoin network will be increased by approximately 80%. While that’s a significant improvement, it is only a temporary fix and long term solutions are also in development. The lightning network is being built on top of the Bitcoin network and multiple different implementations already exist. The lightning network will eventually increase Bitcoin transaction capacity to thousandfold.
From an investment perspective – I think it is smart to acquire bitcoin before these upgrades are enabled. The price could rise very quickly once they are implemented.
Constantly evolving use cases
Some of my acquaintances have asked “can I pay for things locally using bitcoin?” – and that really is irrelevant at this stage. Far more relevant is that the technology behind bitcoin creates ways of trade that were previously impossible. For example, creating online shops easily that use a fee structure radically cheaper and less costly to those selling their products. Or the ability to buy and sell API access that bypasses current paywalls that have complicated registrations, card payments, etc. The tech will allow a user’s browser to automatically send small microtransactions to a news site which then grants access to a specific article – for example. Micro-payments are hard for traditional payment methods because of the fees – but bitcoin makes that easy to implement.
Another cool tech-feature is the possibility of physical bitcoin payment sticks – a USB stick with bitcoin value that is designed for re-use. The balance of a stick can be checked to verify that it holds a certain amount of bitcoin, and can be given to other parties as payment. Bitcoins can be extracted from the stick anytime, but when that is done, it is no longer used.
These are just a couple of examples of what the future might hold and the potential is growing – again, making a decision to acquire bitcoin easier for me.
Emerging smart contracts
When the Bitcoin blockchain becomes linked with so called “sidechains” – it will be able to achieve much more than just monetary payments. For example, smart contracts are believed to have the potential to change the world even further. There are plans for Rootstock _ a blockchain project independent of Ethereum with the purpose of modeling and improving smart contracts. Should significant improvements such as Rootstock evolve, and that’s sure to happen, it is smart to buy bitcoin before its release.
If you’re wondering what “smart contracts” are – they help the exchange of money, property, shares or anything of value in a transparent, conflict-free way – while avoiding the services of a middleman. A great way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With smart contracts, you simply put a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever is placed into your account. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but it also automatically enforces those obligations. Smart contracts will be undeniably faster, cheaper and more secure than traditional systems – which is why banks and governments are so interested.
Self-executing contracts will remove the need for a host of “middlemen” and the fees they charge!
Bitcoin is gaining credibility
Since the exchanges first started in 2010, bitcoin has been quite a ride – trading started at approximately 10¢ USD and there have been a lot of price “bubbles” since. There have been well-documented periods of up-and-down volatility, and this type of development is natural. The best time to invest is when bitcoin is in its cycle either in the bottom or rising from the bottom. Knowing when to invest in what is the bottom is very difficult because you have to find faith at that time – but it is much easier to invest when it is rising from the bottom!
Personally, I think bitcoin is going to continue this phase of massive price increase – especially with the events around the world, such as in Japan. It is also likely that after this rise, the price will go down again – but I think it will stabilize higher than it is now. Even though bitcoin has a lot of volatility, it has been increasing in the long term. I see little reason it won’t continue to do so.
Businesses and VCs backing bitcoin
$1.5 billion in venture capital backing various cryptocurrency ventures currently. These are mostly startups working to make blockchain and cryptocurrencies more accessible and or more useful. Payment systems benefit from a network effect, and gaining traction is very important. So far this year, about $100 million of venture capital went into the cryptocurrency space to acquire bitcoin or back bitcoin projects. Back in 2013 there were only 13.000 wallets on Coinbase. Today there are 6.8 million and Coinbase is backed by major names in the venture capital world.
But not just venture capital is building out the ecosystem – IBM is issuing a steady stream of blockchain related press releases, Overstock build the first blockchain stock exchange and issued a preferred share through it. Microsoft and DISH Network have started accepting Bitcoin. Google shows heightened interest in bitcoin as more and more people are educating themselves on cryptocurrencies.