Is Bitcoin a good investment?

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Bitcoin is the first and largest cryptocurrency in the world today, and its competitors have not been able to come close to its position even with their much more impressive ideas in the last ten years. It is no exaggeration to say that knowing where bitcoin is going is also knowing the future of cryptocurrencies. There have always been many questions about the existence of Bitcoin, the most important of which are these three:

Why is bitcoin worth it? What is Bitcoin support? Why do people buy something that does not exist externally?

To answer these questions, just one sentence is enough: nothing is worthwhile unless the people of society accept it as valuable. Predicting the potential value of Bitcoin in the next few years is something that investors can achieve with fundamental analysis. According to many professional analysts, using fundamental analysis to evaluate cryptocurrencies such as Bitcoin is much more complex than other assets such as stocks and Fiat currencies.

No one knows what is Bitcoin, not even Bitcoin suspects, not Bitcoin fans, not even Satoshi Nakamoto himself. There is no magic way to predict the future. Many of the sharpest minds in the cryptocurrency space welcome this uncertainty. They have no problem with the ambiguity of the future and even believe that this is one of the attractions of Bitcoin.

Elizabeth Stark, CEO of Lightning Labs, which is actively working to build the future of the Bitcoin network, says many of the key uses of Bitcoin over the next 10 years are what we now think They are considered insane, just like in the days before Wikipedia when the idea of ​​an encyclopedia that anyone could edit seemed silly.

Bitcoin/US$ price 2016-21

 

Invest in Bitcoin

The identity of Bitcoin as “money” was shaken a little before it became a means of investing. The debate began in 2017 with a debate over the scalability of bitcoins (the issue of slow transactions and rising fees) when the network faced record-breaking demand and a staggering increase in transaction fees.

It is worth mentioning that in December 2017, at the same time as breaking the record price of bitcoin, bitcoin fees reached $ 50. At the time, the Bitcoin community was debating the future of the cryptocurrency, to the point that some called it a “civil war.”

As a result, on August 1, 2017, a hard fork was created in the Bitcoin blockchain network and a bitcoin cache was created. Bitcoin Cash tried to solve the problem of speed and fees by increasing the size of blocks, but most of the Bitcoin community believed that Bitcoin should remain stable and use SegWit and second-tier solutions such as Lightning Network for scalability. On November 15, 2018, another fork was created in the Bitcoin Cash network, dividing it into two chains, Bitcoin Cash and Bitcoin Satoshi’s Vision (BSV for short).

Fortunately, Bitcoin recovered from the growing market downturn that pervaded the cryptocurrency industry and has since continued to grow. Also, amid these differences at the general level and the bitcoin price performance after the hard fork, bitcoin support and dominance became stronger and more addresses were created to hold bitcoins, which reduced market volatility.

This is where the year 2020 began.

Here are three scenarios that can be used to predict three potential bitcoin routes over the next year.

Scenario 1: Allocate 1 to 2 percent of ordinary people’s capital to Bitcoin

According to the Federal Reserve, the wealth of US households reached $ 112 trillion by June 2020 (10% of people own two-thirds of the wealth).

1 to 2 percent of the $ 112 trillion equals $ 1.1 to $ 2.2 trillion in potential demand for Bitcoin (Fidelity’s latest report suggests a 5 percent chance of investing in Bitcoin).

  • At present, the total bitcoin in circulation is about 18.5 million units. To simplify calculations, assume that a maximum of 21 million units of simple bitcoins is available for sale.
  • If we divide the potential demand by the maximum supply, we will reach the price range of $ 56,000 to $ 112,000. This scenario does not include the rest of the world. According to the Credit Suisse Wealth Report in 2020, household capital worldwide will reach $ 400 trillion. If we consider investing 1 to 2% of the wealth of households in the world, we can think of the price range of 228,000 to 456,000 dollars. Will this happen in the next 12 months? Probably not. What about the next decade? In my opinion, the probability is very high.
Scenario 2: Allocate 2 to 3 percent of the wealth of rich people around the world to Bitcoin

According to Capgemini World Wealth Report 2020, the wealth of the richest people in the world at the end of 2019 was $ 74 trillion (about 13% of various investments, 14.6% of real estate, 17% Fixed income, 25% cash and cash equivalents and 30% stocks).

2 to 3 percent of $ 74 trillion equals $ 1.48 trillion to $ 2.22 trillion in potential demand.

  • If we divide this amount of potential demand by the maximum supply, the price range is between $ 70,000 and $ 105,000.
  • This scenario is based on global data, but only calculates the investment of wealthy people, assuming that these people have more assets to invest in and that it is the managers and advisors of investment companies who decide on their investment. Also, I have considered a longer range for their capital, because rich people are often in a better position to take risks to make higher profits along with controlled risk.

Read More: Effects of bitcoine

Scenario 3: Reaching Gold?

One of the old and common arguments is that if Bitcoin is widely accepted as the “digital and superior version of gold”, it can reach gold in terms of market value.

The current value of the gold market is $ 9 trillion, which is about 2% of the total wealth of the world and 12% of the wealth of the richest people in the world.

For Bitcoin to be worth 100 percent of its gold market value, it must reach a price of $ 428,000. Is this a point that can be considered for the next 12 months? Not very realistic. But can Bitcoin reach 20 to 25 percent of the value of the gold market (equivalent to 2.4 to 3 percent of the wealth of the world’s richest people) in the next 12 months? It is possible, and this hypothesis puts the price range at $ 80,000 to $ 110,000.

Other factors can add more positive and positive aspects to Bitcoin. Given that we are still in the early stages of public acceptance of bitcoins, I do not intend to overemphasize them, but only to outline the future of bitcoin.

  • Potential allocation of corporate funds to invest in bitcoin. At present, we are witnessing the first signs of this trend with the investment of Square and Micro strategy companies. Recently, Square spent about 1.8 percent of its cash balance to buy 50 million bitcoins. Of course, estimating company demand for bitcoin is not easy; Because each company has its cash flow and growing trend that affects the degree of risk-taking in investing in various assets.
  • Potential allocation of foreign exchange reserves of all independent countries. According to the International Monetary Fund, the global foreign exchange market reserves (Forex) as of June 2020 were $ 12 trillion, with the bulk of the top three reserve currencies: the dollar at $ 7 trillion (58.3%), the euro With $ 2 trillion (16.7%) and yen with $ 650 billion (5.4%). Is it possible for independent countries to allocate part of their Forex reserves to Bitcoin? In my opinion, this will be possible overtime, when the superiority of Bitcoin as a “value store” is established over the next 5 to 10 years. Assuming a 25 percent investment (equivalent to $ 3 trillion, slightly more than the euro capital), the price will increase by another $ 140,000. It takes a lot of time for Bitcoin to reach the US dollar as the top international reserve currency (if it can reach it at all). However, it is not impossible to place Bitcoin among the top three currencies in the world.
  • Not all bitcoins are available for trading. There are currently approximately 18.5 million coins in circulation, of which about 10 percent have remained intact for more than 10 years. It is difficult to calculate how much bitcoin will be ready for sale at different prices.

Read More: what is ethereum?

None of the above has taken into account the dollar inflation rate (at least about 2 to 3% per annum) in the coming years. Also, none of these scenarios take into account the potential impact of the Bitcoin network in their calculations, the likelihood that Bitcoin as a unit of account will be more accepted and trusted.

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Market capitalization of Bitcoin with gold and other markets

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