As Bitcoin continues to have an amazing bull run in 2021, the question on everyone’s mind is whether this is the right time to buy.
“Hey Jean, do you think this is a good time to buy myself some Bitcoin?”
My inbox has been flooded with slight variations of this question, so I wrote this article to help my friends, family, and the general public process this decision and arrive at an informed decision.
I am a strong believer in the long-term future of Bitcoin due to its fundamental properties, which we’ll delve into later in this article. I have therefore been happy to buy at any price point since Bitcoin’s inception, as I think the price has a long way to go still and we’re in the early years of crypto, comparable to watching the dawn of commercial internet usage in the mid to late 90s.
I consider Bitcoin as the best investment of our lifetime, and will do my best to explain why I think so in the rest of this article.
How to Get Started with Bitcoin
I know you might now have time or even sufficient interest to read the rest of this long article, so again, if you’re already convinced about buying, here are my basic recommendations for entering the Bitcoin space.
In the meantime, if you’re already convinced and you came here looking for the best places to buy Bitcoin right away, here’s what you need to do next:
There are hundreds of places you can buy Bitcoin from, but I would suggest that you stick to the exchanges that have been established for many years and have a perfect security track record. It’s important that these exchanges are regulated where applicable. These are my recommendations:
They are the world’s safest, biggest and most reputable exchanges and you can’t go wrong with them.
I’ve also written a guide on how to buy Bitcoin in Europe where I go into further detail on how you can get your hands on some Bitcoin.
Once you have your Bitcoin, you can purchase a Ledger Nano to store that Bitcoin offline and away from any hackers.
If you just want to hold your Bitcoin while earning good returns, you can check out some crypto platforms that offer a savings account. My favorites at the moment are BlockFi and YouHodler, but you can learn more about those options here.
Towards the end of the article, I will again discuss some of the ways that you can make money with Bitcoin.
Waiting to Buy the Dip
By far the most frequent follow-up question I get and the biggest block I see people facing, is this:
“What price should I buy at?”
I don’t believe in timing the market on any investment, unless there is a big macro event like the financial crisis of 2007-2008 and the COVID dip of March 2020.
Therefore, for any investment I make, I’m typically looking 5-10 years ahead and thinking about how much value that investment can generate within that timeframe. The whole crypto space is still in its infancy, and Bitcoin has enormous room for growth, thus any price point is a good entry in my opinion.
I think we’ll be seeing many more similar tweets in the coming months and years:
#Bitcoin is $40,400 right now.
You could have bought it for $29,000 last week. Still waiting for the dip?
— Bitcoin Archive 🗄🚀🌔 (@BTC_Archive) February 6, 2021
Unfortunately, people are really attracted to the idea of buying the dip. The problem is that the dip may never come, and if you know people who did buy some dip, it’s likely that they were in a position to buy at an even lower price a few months earlier but didn’t have the courage to pull the trigger. If that’s not the case, in 90% of the cases I would attribute managing to buy a dip to pure luck.
Even in the case of the major macro events like the 2007 crisis and March 2020 dip, to make the most of those events you’d have had to have a lot of spare cash lying around and ready to be invested. Again, mostly, a question of luck.
However, if you feel uncomfortable about choosing a particular price point to make your entry, consider investing a fixed amount periodically, say every month. In that way, you’ll smooth out any drastic price variances and you’ll be building up your Bitcoin portfolio over time. The disadvantage of that strategy is that Bitcoin might make a sharp move upwards in the meantime.
Ok, with those preliminary recommendations out of the way, let’s proceed with the reasons why I think Bitcoin is the best investment of our generation.
Why am I Bullish on Bitcoin?
Last year, after the March dip, I had written about that being a great time to increase one’s Bitcoin holding, as the market was ruled by fear.
Since then, the price has risen steadily, breaking through its former all-time high in a dramatic way. In 2021, it seems that the bull market is back in full swing.
Before we continue, let me reiterate that nobody can predict Bitcoin’s price, and neither can I. Even if I had some hunch, I would not want you to blindly follow what I say, because I am against getting financial advice online.
However, I use this blog as my own small space to think about things, and writing is how I best formulate my ideas. As an added benefit, I get to interact with other investors and people whose ideas contrast mine, thus helping me further refine my thoughts.
The way I see it now, Bitcoin seems to be following the stock-to-flow model. Proponents of this model had predicted that the price of Bitcoin should reach somewhere between $100k and $200k at some point in 2021 or 2022. This is based on an analysis of the demand and scarcity of this asset, and comparing it to other assets like gold.
Read more: The Best Books about Bitcoin and Crypto
This is a very bullish target price, although it does seem much more realistic now that Bitcoin has broken through $40k. Irrespective of the price swings, I remain very bullish on the Bitcoin network long-term, due to the fundamentals being stronger than ever.
Let’s now consider a few major themes that add to the bullish argument for Bitcoin.
During bull markets, the long term Bitcoin holders hoard the supply in anticipation of a major price increase. As of November 2020, over 62% of the Bitcoin supply hasn’t moved in over one year (all-time-high). This is a very bullish indicator.
All indications say we’re at the beginning of the next major bull run. Smart money is flooding in, “bad news” doesn’t negatively affect the price, and the existing investor base is hoarding the outstanding supply.
Bitcoin as a Safe Haven
The US federal reserved printed ungodly amounts of dollars last year and then pumped into traditional financial markets last year to keep them from faltering. The European Union followed suit. It’s quite logical that with more money in the system, the value of your existing stash will lose value as money is less scarce than it was before. Bitcoin on the other hand maintains its hard cap on the total amount that can ever be issued.
Hence we get a chart like this, where fiat currencies unequivocally lose value against hard assets like Bitcoin.
Big institutions and corporate entities have understood this very well. In fact, their main play is that of protecting their financial reserves, rather than buying Bitcoin in the hope of exponential growth. They want to protect the store of value they have accumulated over the years, and they know that if they don’t buy a hard asset like Bitcoin that value will be greatly diminished by the effects of money printing and other fiscal policies.
The Great Upcoming Wealth Transfer
Kraken Intelligence, the in-house research team at the crypto exchange of the same name, released a new report entitled “Inheriting USDs & Acquiring BTCs: How ‘The Great Wealth Transfer’ Will Fuel ‘The Great Bitcoin Adoption.’”
According to the report, if American Millennials were to invest at least five percent of their inherited wealth into Bitcoin (BTC), they could drive the price up to $350,000 in 2044. This would effectively give the generational group almost $70 trillion of value from a $971 billion investment.
2/ Assuming a 5% investment allocation and a 2% inheritance tax, by 2044 Gen X and Millennials could invest an estimated $971 billion into #Bitcoin as they inherit wealth.
World investment could make this figure much higher. pic.twitter.com/r0VV97HIgz
— Kraken Exchange (@krakenfx) March 25, 2020
With many older Americans on the verge of retirement, the report suggests those in younger generations who are not only more familiar with but more accepting of Bitcoin will have more options investing in the future.
“…a disproportionate percentage of the Millennials and Gen X will continue to be the driving force of adoption [of cryptocurrency] for the foreseeable future. While this can be explained in part by the fact that both generations harness a greater technological competence than their elders, we should also consider that bitcoin’s current volatility is unsuitable for individuals nearing or in retirement.”
Baby Boomers in the United States currently control approximately 57% of the total wealth, $50 trillion of which will pass to Millennials and Gen Xers in the next two years. This redistribution is referred to as the “Great Wealth Transfer”.
If younger people were to use just 1% of this wealth to then invest in BTC, the price could rise to $70,000 — if not more — in 2044. This is based only on investors in the U.S., meaning the actual numbers could easily be higher.
Bitcoin entering the Fourth Era
According to an analysis by Bitwise Asset Management, Bitcoin is entering its fourth era in which it will go mainstream, and if previous eras are anything to go by, we should be seeing a big run-up to $100,000 or more in the next 2 years.
Crypto, or digital assets, are a highly correlated space. The best coins will always have the softest bear markets, and it is becoming clear that Ethereum wasn’t much worse on the COVID correction and is punching above its weight in the rally. With a network value around 15% of Bitcoin, there is the potential for a catch-up, but its network is smaller on the most important measures.
Crypto valuation is all about the network. While Ethereum processes a large number of transactions, they tend to be small. It won’t catch up unless its network sees a surge in transaction value, which means either many more transactions or to attract a greater share of the larger ones. But this is a youthful space, and anything is possible in crypto.
In the meantime, Bitcoin is heading back to $20 billion of network transfer each week. So long as this goes up, so will the price of Bitcoin.
New Crypto-First Banks
Less than two months after cryptocurrency exchange Kraken secured its Wyoming bank charter to start a crypto bank, a second player did the same.
Startup Crypto Bank Avanti Unanimously Wins Wyoming Bank Charter: Avanti Founder and CEO Caitlin Long, a Wall Street Veteran who used to run Morgan Stanley’s pension advisory group, expects the bank to launch sometime in 2021.
These are very bullish developments for the crypto space in general, as banking has long been a major Achilles heel for crypto investors and businesses. Many of the world’s banks were and still are hesitant about providing services to crypto-related companies, and some even prohibit normal people from transferring fiat currency to exchange accounts or withdrawing them back from exchanges to the banks.
These new banks, and others that are pivoting or changing their previous stance, will now change the scenario and make crypto investing much more accessible, paving the way for many new investors to enter and get their first holdings.
Click here to check out some forward-thinking European banks that are crypto-friendly.
Not only are we seeing new crypto-friendly banks popping up, but even traditional banks are getting in:
BNY Mellon, America’s oldest bank, announced its plans for a digital asset custody offering later in 2021. Mike Demissie, head of advanced solutions at BNY Mellon, called custody services the “anchor” of the industry.
A $150 billion investment group at Morgan Stanley is considering whether bitcoin is a “suitable option for its investors,” per a Bloomberg report. The investment would require regulatory approval.
Deutsche Bank also has plans for cryptocurrency custody and prime brokerage offerings. According to a previously overlooked report from late 2020, the bank is set to develop “a fully integrated custody platform for institutional clients and their digital assets” to connect with “the broader cryptocurrency ecosystem.”
JPMorgan co-president Daniel Pinto said his bank “will have to be involved” in bitcoin if it develops into an asset used by different managers and investors. “The demand isn’t there yet, but I’m sure it will be at some point,” Pinto said.
European countries legalizing Bitcoin
As reported by Les Echos, Bitcoin now has the official status of money in France.
Meanwhile, Bitcoin has been qualified as a financial instrument in Germany. Portugal, on the other hand, is well-known as possibly the most crypto-friendly nation in Europe, and does not impose any taxes on crypto gains.
Bitcoin is the result of many previous projects and research
Many people seem to think that Bitcoin is a recent thing, even a bubble, but it can’t be further from the truth. Bitcoin has already been working for more than ten years, while being itself just the latest in a series of projects that tried to achieve the aim of a censorship-resistant and digital money and store of value.
Here’s a chart illustrating how far the Bitcoin prehistory goes:
2020 was a massive year for Crypto
The year 2020 will be one to remember due to the devastating effects on humanity and the economy as a result of COVID and government policies, but crypto just had an amazing year.
We had the DeFi summer and the long-awaited institutional buying of Bitcoin, as well as the launch of the ETH2 beacon chain and many other big events. Here’s an infographic illustrating the major crypto events of 2020:
What the Charts and Indicators Show
Let’s take a look at some charts.
Financial predictive models are a graphical way of displaying different investment thesis, and while some do remain valid long-term, it’s important to keep in mind that they are constructed by looking back at what the price has done in the past, and this might not reflect what it will do in the future, as there are so many factors that might come into play.
However, I still like to follow several models and indicators as I feel they give me a better sense of the current scenario.
The Stock to Flow Model
The stock-to-flow model for Bitcoin was popularised by Twitter user @planb and is all about modeling Bitcoin’s value with scarcity.
This model treats Bitcoin as being comparable to commodities such as gold, silver or platinum. These are known as ‘store of value’ commodities because they retain value over long time frames due to their relative scarcity. It is difficult to significantly increase their supply i.e. the process of searching for gold and then mining it is expensive and takes time. Bitcoin is similar because it is also scarce. In fact, it is the first-ever scarce digital object to exist. There are a limited number of coins in existence and it will take a lot of electricity and computing effort to mine the 3 million outstanding coins still to be mined, therefore the supply rate is consistently low.
Stock-to-flow ratios are used to evaluate the current stock of a commodity (total amount currently available) against the flow of new production (amount mined that specific year).
For store of value (SoV) commodities like gold, platinum, or silver, a high ratio indicates that they are mostly not consumed in industrial applications. Instead, the majority is stored as a monetary hedge, thus driving up the stock-to-flow ratio.
A higher ratio indicates that the commodity is increasingly scarce – and therefore more valuable as a store of value.
As you can see in the chart (as at January 2021), the price is tracking the model very closely and seems to be on course to the $100,000 level where the model predicts things will flatten out for a few years until the following halving.
A more detailed version of the chart and explanation of what everything means can be found here.
Net Unrealized Profit/Loss
Profit and Loss metrics answer the question: if all units of a given currency were sold today, how much would investors stand to gain or lose?
By looking at the delta between the price when a UTXO was created vs. the current price of an asset, we can determine whether the specific coins in that UTXO are in a state of unrealized profit (price has increased) or loss (price has decreased). When looking at this across the entire network, we can see how much of the network is in profit, and how much is in loss.
NUPL (Net Unrealized Profit/Loss) specifically looks at the difference between Unrealized Profit and Unrealized Loss to determine whether the network as a whole is currently in a state of profit or loss.
Any value above zero indicates that the network is in a state of net profit, while values below zero indicate a state of net loss. In general, the further NUPL deviates from zero, the closer the market trends towards tops and bottoms. As such, NUPL can help investors identify when to take profit (blue) and when to re-enter (red).
The Rainbow Chart
Here’s the Bitcoin rainbow chart as at January 2021. The Rainbow Chart is meant to be a fun way of looking at long term price movements, disregarding the daily volatility “noise”. The color bands follow a logarithmic regression (introduced by Bitcointalk User trolololo in 2014), but are otherwise completely arbitrary and without any scientific basis.
Whilst the original chart was graded as simply ‘buy’, ‘sell’ or ‘average’, this has now taken on a finer delimitation.
At the top end we have ‘maximum bubble territory’, going through sell indicators, building FOMO, and down to ‘HODL!’ in the middle yellow band.
On the lower end of the spectrum, the scale goes through various levels of good value, down to the final ‘basically a fire sale’ band.
Back in March 2020, I had written about it being a fantastic time to stockpile on Bitcoin. To zoom in on the chart then:
This doesn’t prove anything about the chart, but it did work perfectly well in the last dip. Right now, it seems like we’re heading into some shaky territory where a good dip would not be that unexpected. However, there still seems to be some room for growth.
The Bitcoin-gold rate peaks at an all-time high
Early on the morning of January 1st, the Bitcoin-gold rate peaked at 15.62 ounces, surpassing the December 2017 peak of $29,000. Even though gold also experienced large gains in 2020, these gains were minimal in comparison to Bitcoin’s meteoric rise. Gold ended the year with a 25% gain while Bitcoin had an increase of 300%. Investors seem to be choosing the “efficiency” and “portability” of digital currency over gold.
JPMorgan Chase analysts believe Bitcoin’s digital gold narrative is taking capital from precious metals. It is thought that Bitcoin’s supply shortage will drive its prices higher as 2021 progresses.
The HODL Waves is a data visualization that displays colored bands representing the percentage of total bitcoin and the length of time that bitcoin has been sitting in a given address. This visualization is made possible because the bitcoin blockchain is completely public. You can read the original article that describes them here. By comparing the age of bitcoin sitting in addresses to the current US dollar prices, we can make some interesting conjectures about the bitcoin economy and the sentiment of HODLers.
While the price crash in March was sharp, we can see that the coins shifting hands during that time were coins that had previously moved within the last 6 months, indicating that the crash may have been caused by leveraged traders getting liquidated. Long-term holders were unaffected by the movement, meaning that coins that had been sitting in addresses for longer than 6 months became a higher percentage of the total bitcoin sitting in addresses. This helps explain the rapid 2 month recovery back to the previous prices.
On-chain data provided by Coin Metrics also shows that recent price movements were likely mostly driven by shorter-term and relatively new holders. Long term holders appear unfazed in spite of the severe market downturn.
While market cap for most cryptoassets fell, the market cap for most stablecoins increased. This potentially signals that investors were piling into “cash,” or at least crypto cash equivalents.
As of January 2021, we can see that 59.03% of bitcoin has been held for longer than 1 year. That is still a long way away from the bottom of the last cycle, which was April 10, 2018 at a price of $6,839 (after running up from $172 in January 2015), when only 41.1% of available bitcoin was held for 1 year or longer. If the 2018-2020 HODL wave looks anything like the last one, we can expect some extreme price movements as new entrants try to recapture that ~18% difference between 59.03% and 41.1% of long-term held bitcoin.
The Relative Strength Index
The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, “New Concepts in Technical Trading Systems.”
Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.
Who is investing in Bitcoin?
In case you think it’s just some weirdos and crazy retail investors who are piling into Bitcoin, have a look at what these well-known professional investors are saying:
Legendary global macro investor Raoul Pal says he’s never seen a trade as dominant as Bitcoin.
J.P. Morgan, whose CEO Jamie Dimon called bitcoin a fraud just three years ago, published an in-depth feature in its flagship research series comparing bitcoin to gold, and saying its price could double or triple if current trends continue. Earlier this year, J.P. Morgan also agreed to provide banking services to crypto pioneer Coinbase, and has been getting involved in additional ways.
Billionaire U.S. investor Stanley Druckenmiller is long on bitcoin. In a Monday CNBC appearance, Druckenmiller disclosed a bitcoin position significantly smaller than his gold horde. However, he predicts bitcoin will outperform gold in the long run – largely due to millennial and Silicon Valley attraction to the crypto scene. “Frankly, if the gold bet works the bitcoin bet will probably work better because it’s thinner, more illiquid and has a lot more beta to it,” he said. Drunkenmiller made headlines last week for his bearish views on the U.S. dollar, which he suspects will decline for the next three to four years.
Mutual fund titan Bill Miller has also taken a fancy to bitcoin. “One of the things that’s interesting about bitcoin is that it gets less risky the higher it goes,” Miller told CNBC in a January 2021 interview. “That’s the opposite of what happens with most stocks.” He also said that “Bitcoin could be rat poison, and the rat could be cash.” in his fund’s latest investment letter, referring to a similar comment of the opposite effect from Warren Buffett.
Miller continued to describe bitcoin as “a supply-and-demand story” with roughly 900 bitcoins created each day and a swarm of retail and institutional investors scooping up enormous chunks of available supply.
The Grayscale Bitcoin Trust has accumulated more than 3% of the total bitcoin supply. That’s according to Bloomberg, which interviewed CEO Michael Sonnenshein for the piece.
The interesting thing about what happened in the Q4 Bitcoin price run-up, is that most retail investors were sitting by the sidelines.
There were relatively few new investors joining in the fun. The big reason, in my opinion, is that most people were acting extra cautious during 2020 as the reality is that a lot of jobs and businesses were and are still threatened. If you don’t have a lot of extra cash lying around, you most likely have your money invested in assets that are hard to sell at the moment, or you’re just sitting in cash due to the uncertain situation.
While the smart money was accumulating Bitcoin, retail interest only increased slightly.
Historically, retail floods into Bitcoin after breaking previous all-time-highs. If history repeats, Bitcoin is going to be explosive over the coming 18 months.
Now that we started 2021 so strongly, we are seeing retail investor interest go up a few notches, and this can be verified using social signals as well as tools like Google Trends.
This chart from January 2020 shows the historical interest on the web for the term “buy bitcoin”. You can see a peak at the end of 2017 where we had the previous big runup. If you were aware of Bitcoin back then, you might remember that many people were talking about it, and it wasn’t uncommon to hear even taxi drivers and grandmothers talking about their Bitcoin investment. I don’t see that kind of thing happening again just yet, which further lends credibility to the idea that this time it’s different and the price going higher is driven by institutional investing rather than retail.
Companies Moving their Reserves to Bitcoin
Many public and private companies have started to adopt Bitcoin as their reserve currency.
Here is a list of the biggest corporate holdings:
- MicroStrategy – 71,079 BTC
- Tesla – 43,000 BTC
- Galaxy Digital Holdings – 16,402 BTC
- Mass Mutual – 5,300 BTC
- Marathon Patent Group – 4,813 BTC
- Square – 4,709 BTC
- Hut 8 – 2,851 BTC
- Voyager Digital – 1,239 BTC
- Riot Blockchain – 1,175 BTC
Tesla, led by the world’s richest man Elon Musk, invested $1.5 billion of its cash reserves in bitcoin, according to a U.S. Securities and Exchange Commission annual report. The popular auto manufacturer said bitcoin offers “more flexibility to further diversify and maximize returns on our cash.” The company had more than $19 billion in cash and cash equivalents at the end of 2020.
Microstrategy was the first to publicly announce their move by purchasing 21,454 bitcoins at an aggregate purchase price of $250 million., but others have followed hot on their heels, including the e-payments giant Square, led by Twitter founder Jack Dorsey.
This was followed up with another purchase in September 2020.
On September 14, 2020, MicroStrategy completed its acquisition of 16,796 additional bitcoins at an aggregate purchase price of $175 million. To date, we have purchased a total of 38,250 bitcoins at an aggregate purchase price of $425 million, inclusive of fees and expenses.
— Michael Saylor (@michael_saylor) September 15, 2020
Even then, Saylor wasn’t content with his company’s stash. He went ahead and raised $650 million to purchase more crypto in December 2021.
MicroStrategy has purchased an additional 29,646 bitcoins for $650 million at an average price of $21,925 per #bitcoin and now #hodl an aggregate of 70,470 bitcoins purchased for $1.125 billion at an average price of $15,964 per bitcoin.https://t.co/j6wVLXIzoa
— Michael Saylor (@michael_saylor) December 21, 2020
Think he’d had enough then? Of course not. He went ahead and bought some more in January 2021.
MicroStrategy has purchased approximately 314 bitcoins for $10.0 million in cash in accordance with its Treasury Reserve Policy, at an average price of approximately $31,808 per bitcoin. We now hold approximately 70,784 bitcoins.https://t.co/zMJSH29bmC
— Michael Saylor (@michael_saylor) January 22, 2021
Here’s why, in his own words:
“This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.
MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”
I believe other private and public companies will follow suit.
#Bitcoin provides Integrity to the digital monetary system. Liquidity, Scalability, Security, Functionality, Performance, Compatibility, Accessibility, Compliance, & Popularity will be delivered by those individuals, enterprises & agencies that support the Bitcoin Standard.
— Michael Saylor (@michael_saylor) November 1, 2020
This means that Bitcoin is much harder for any government to ban, plus it also means that millions of people are now indirectly invested into Bitcoin by holding shares of these companies.
It’s really exciting to see so many companies hold large Bitcoin treasuries. Here’s a list of publicly trading companies that have publicly announced their Bitcoin positions.
Morgan Stanley Acquires 10.9% of MicroStrategy
The financial giant, Morgan Stanley, has purchased 650,000 shares in MicroStrategy boosting its total to 792,627 and bringing its total ownership in the company to 10.9%.
The same reason why so many retail investors have been investing in MicroStrategy, sending its stock price through the roof.
MicroStrategy’s shares are largely tracking the price of bitcoin. Therefore, it’s hard for one to not assume that this is a strategic move on the institutional giant’s part. Morgan Stanley will be looking to benefit from bitcoin’s historic run without actually having to become a HODLer.
Keep in mind that for many people around the world it is still very hard to buy Bitcoin due to laws in their countries, banking obstacles, etc. But buying a stock is a much more straightforward affair, so for now MicroStrategy acts as a proxy for Bitcoin.
Cities Buying Bitcoin
Francis Suarez, the mayor of Miami, announced his interest in acquiring Bitcoin for the city’s reserves, in yet another domino effect moment. Not only that, he is working day and night to turn Miami into a hub for crypto innovation.
The City of Miami believes in #Bitcoin and I’m working day and night to turn Miami into a hub for crypto innovation.
— Mayor Francis Suarez (@FrancisSuarez) January 27, 2021
WOW! Miami Mayor @FrancisSuarez just got Miami into Bitcoin.
– Employees paid in BTC
– Residents pay fees in BTC
– Taxes in BTC
– City Treasury in BTC
Absolutely unreal. The first Bitcoin municipal in the United States 🔥 pic.twitter.com/zv7rM7C39B
— Pomp 🌪 (@APompliano) February 12, 2021
That’s the power of Bitcoin. Not only has it provided the opportunity for a wealth transfer, but it’s also changing the geographical hierarchy of the world. Those cities and countries that embrace Bitcoin and freedom will gain an edge over those that don’t.
It’s only a matter of time before more cities buy Bitcoin, and shortly after countries will announce it. By then, there would be no doubts whatsoever about whether governments will ban Bitcoin.
Countries Accepting Tax Payments in Crypto
The Swiss canton of Zug – dubbed “Crypto Valley” thanks to the many digital-asset companies drawn to the jurisdiction because of its friendly blockchain and crypto regulation – has started accepting tax payments in cryptocurrency. For now, there’s a cap of 100,000 Swiss francs ($111,300). “As the home of the Crypto Valley, it is important to us to further promote and simplify the use of cryptocurrencies in everyday life,” said Zug’s finance director, Heinz Tannler, when the tax initiative was announced.
The PayPal Effect
PayPal, Cash App, Revolut and others have also contributed to Bitcoin’s high demand and its subsequent shortage. Grayscale Capital also deserves a mention in this section. All these companies have been scooping up Bitcoin to offer it to their customers.
Financial services giant PayPal ($250 billion market cap) was huge news towards the end of 2020, as it announced that it will allow its ~200M U.S. users to buy, sell, and store cryptoassets on its platform, starting with Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. This opened up Bitcoin investing to millions of users who previously did not have the confidence or skills to get themselves some Bitcoin, but can now purchase it through a familiar interface. Given that PayPal is used by people of all ages and nationalities, this is a really important development.
What’s more, the firm said it would enable its 26 million merchants to accept crypto as a payment method, starting in early 2021. This news was huge. It was likely the biggest development of 2020 for crypto. It represents a major leveling-up of the asset class.
The news sent crypto prices sharply higher. Bitcoin rose more than 10% to a multiyear high above $13,000, and other assets followed, including Litecoin, up 15%.
Not to mention the fact that huge players like PayPal making moves like these make it less and less likely that the US government will ever make any drastic moves such as banning bitcoin outright.
Today, the largest crypto wallet, Blockchain.com, has 50 million users. Coinbase has 40 million, Square has 30 million, and Robinhood has 12 million. At nearly 200 million U.S. users, PayPal is 4x the size of the largest existing platform.
PayPal’s smaller competitor Square allows users to buy and sell bitcoin through its Cash App. Flows have been significant: In Q2 2020, for instance, CashApp users purchased $875 million of bitcoin.
In addition to demand for investment purposes, PayPal is uniquely suited to finally break down the door to the widespread use of crypto as a payment vehicle.
By early 2021, PayPal’s 26 million merchants will be able to accept payment in bitcoin, ethereum, Litecoin, and Bitcoin Cash. These merchants aren’t just large firms like eBay, but millions of small businesses processing transactions over the internet. In many ways, you could imagine they might be the most likely audience to embrace crypto.
PayPal’s initial retail push will have limitations. But if even just 0.1% of retailers start accepting crypto payments, you have the beginnings of a real commerce use case that has long been sought by the industry.
The final reason this is a big deal is simply that PayPal is a significant business; more significant than many people think.
PayPal today boasts a market capitalization of $250 billion, significantly larger than Bank of America ($208 billion), Wells Fargo ($93 billion), Morgan Stanley ($91 billion), Citi ($89 billion), and Goldman Sachs ($70 billion), among others.
They’re also a highly regulated money transmitter and financial institution. PayPal’s move shows other such institutions that crypto is now possible on the largest possible scale.
Mastercard, another big player, is planning to give merchants the option to receive payments in cryptocurrency later in 2021.
In fact, a recent letter published by the Office of the Comptroller of the Currency clarified that national banks can custody cryptoassets themselves. With PayPal now leading the way, what reasons do banks and other payments companies have for not offering comparable services?
ETFs are Coming
Crypto ETFs have long been in the pipeline, however, the US SEC has refused all of the applications so far.
Profiting from Bitcoin
Since I know many people visit this article with the idea of making money from crypto, here are some of the ways you can do so. I purposefully left this section towards the end of the article as it’s very important to educate yourself before you dive in.
Do your own research always, as this is a very volatile space that is in its early stages. Having said that, for those who know what they are doing, the returns can be incredible.
In these volatile times, there is a big opportunity to make some money just trading Bitcoin. The idea is to buy when the price is suppressed and sell when it is rallying.
If you’re not confident doing that yourself, you can make use of a service like CopyTrading from eToro.
With CopyTrading, trades will be automatically copied to your account allowing you to manage your portfolio in a simple and transparent way. With over 3 million traders to choose from, you can interact with and copy multiple traders.
To get started, create your free eToro account. All information you submit is protected by the latest encryption technology and will not be shared with third parties. Once your account is created, select one of the available payment methods to fund it.
Want to learn how to trade? Check out Thomas Kralow’s trading courses. There’s a ton of scam educational content in the trading space – Thomas’ course is one of the few that stand out.
Use the eToro People page to find eToro’s best traders. Make sure to check the traders’ portfolios and trading stats. To base your copy trading portfolio on specific markets (i.e. crypto), use the eToro Markets page to see which investors are trading in the market of your choice.
Once you’ve found the crypto traders you want to copy, simply click on Copy to start copying their positions. You will be asked to specify the percentage of your funds you want to allocate for copying. The amounts for the copied trades will be calculated accordingly.
The trades made by those you’ve chosen will be automatically recreated in your account. You retain full control of your account and can take the trade over, or stop copying a trader altogether, at any time. Finally, always be on the lookout for new trading stars to add to your copy trading portfolio!
Here are a few more tips for trading cryptos:
- The stock market is only open less than 20% of the time when cryptocurrency markets are open
- Bitcoin is the most traded on Wednesday and Thursday and the most volatile on Thursday
- It is the least traded on weekends and also the least volatile
The average volume based on the time of the day shows that the highest volume happens around 10am ET and then gradually decreases until it peaks again around 8pm ET. Volume is the lowest from 10pm to 5am, which is usually the time when most of the people on the East Coast sleep.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Cryptoassets are volatile instruments that can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading crypto assets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.
Buy and Hold Bitcoin
If it’s your first time getting into Bitcoin, an easy strategy would be to just buy and hold this crypto. I recommend buying from these exchanges:
If you want to read more about custodying your Bitcoin, read my in-depth article on that subject.
How to Buy Bitcoin with PayPal
If you have funds in your PayPal account that you’d like to use to buy Bitcoin right away, you’ll be pleased to know that both Coinbase and eToro allow funding from PayPal accounts, as I detailed in my guide to buying crypto with PayPal.
Need Cash? Take a crypto loan instead of selling
If you need quick liquidity, you typically sell-off some of your assets. Anyone can run into an emergency situation.
But there are alternatives to selling. Crypto backed P2P loan platforms are very popular, big holders of crypto prefer to get loans in fiat currency using their crypto as collateral instead of selling their crypto.
You could also use your crypto to earn interest using platforms like Youhodler.
While buying and holding has traditionally been the easiest and probably best way to profit from the Bitcoin boom, there are several other ways to make money by getting involved with Bitcoin.
Cloud mining consists of contributing fiat money to join a mining pool. Genesis is probably the only mining pool that I would trust as of 2020, however profits are far from guaranteed and I think it’s still too risky a proposition compared to just buying and holding, so I have so far avoided getting involved in mining.
You could, of course, also set up your own mine, but at this stage, you would need a big investment and be very technical to even have any chance of successfully doing this. Unless you’re a mining expert, don’t even think of setting up your own mining setup.
Arbitrage Trading Software
A common scam – avoid outright. There are many websites that promote their software that purportedly generates insane daily profits through some proprietary genius trading and arbitrage techniques.
Predictably, they are all scams and Ponzi schemes, and you are sure to find a referral program meant to be the main driver of any returns. Examples include Bitconnect, Arbistar, Mind Capital and Kualian.
When this is over
➡️The fed will have printed trillions
➡️USD will have lost value
➡️Leaders will have lost credibility
See you on the other side!
— Lina Seiche (@LinaSeiche) March 13, 2020
I think we should focus on the long term, the big picture. If you have faith in this technology you know this is the worst time to panic sell and the best to keep hodling, or better yet, buy more crypto.
The other alternative is to engage in trading, if you have the right skills to do so. In shaky times like these when the price tends to be quite volatile, trading can be a very profitable endeavor.
Given the huge upside potential and promise for Bitcoin, I think that the easiest and most fool-proof strategy right now is to just buy Bitcoin and store it safely. Wait a few years and if all goes according to the ideas exposed above you will be sitting on a nice increase in your net worth.
If Bitcoin can remain decoupled from US Equities & the market treats it as Digital Gold, 2021-2022 should be an amazing cycle for BTC. Always follow the present strongest force as that drives market direction – Presently, that is the Demand Side fueled by Funds & Retail Money.
I like to use the Whatifihodl tool to figure out how much a current Bitcoin stash will be worth in the future based on price projections. You could also use Hodlcalc to see how much Bitcoins bought in the past would be worth today. It’s a great tool if you fancy ending up kick yourself for not getting involved earlier than you did 🙂
Alternative Currencies to Buy
While there are many hardcore Bitcoiners who think that all other cryptocurrencies are rubbish, I would disagree. I’ve written about a number of other cryptocurrencies that are worth looking into, and due to the growth of DeFi I would say that Ethereum is one, in particular, to keep an eye on.
You also need to keep in mind that in most countries crypto trading is taxable. Read about how crypto is taxed around the world or how crypto investors have scored a great deal with Portugal.
This is a service that only tracks your crypto portfolio across various exchanges and cold storage devices, but can also prepare your taxes for you in a few minutes. They can also execute strategies like tax loss harvesting. If you do any trading or use bitcoin for payments this is an essential tool as you will have many transactions to record for tax purposes, and you can’t afford the possible mistakes that come from the tedious manual work of calculations.
In conclusion, I think that we are seeing a clear trend towards Bitcoin adoption. Whether or not you “believe in bitcoin,” it’s here to stay.
It took 12 years, but it’s gained acceptance and there’s no going back. The companies, asset managers, and governments that stop fighting the rising tide and decide to surf it will be the ones that fare the best.
If you’re ready to buy Bitcoin and cryptos and want to read more about the buying process, do check out my guide to investing in Bitcoin and cryptocurrencies.