Note: as I was preparing this article for posting, Bitcoin broke decisively above 2017 and 2020 highs to a Dec. 16 close over $21,000. This new advance is likely to continue into the $24,000’s before dropping to test support near $20,000, or perhaps a little lower.
Should have bought more! That’s a regret that often accompanies a successful investment. Bitcoin investors have been experiencing that feeling in spades, as BTC recorded back-to-back doubles over two consecutive 4.5-month periods, to an all-time high $19857 on November 30.
Prudent crypto holders sold enough during these rises to recover their original investment and are now “free-riding” on pure profits… The good news is that additional opportunities for future free-rides appear likely, with indicators pointing to MUCH higher prices down the road.
How high? is a subject for speculation. One indicator is that continuing flows of sophisticated money into cryptos are being accompanied by expectations of a single Bitcoin valued at $100K, $300K and even $1 million. I cannot overemphasize how spectacular BTC’s rise “might” be!
Broad professional support continues to build. Recent crypto investors include Guggenheim ($530m), MassMutual ($100m) and MicroStrategy ($900m). BTC’s clean break today above $20,000 revealed Eric Peters as a driver behind $600 million in purchases. Legendary investors Stan Druckenmiller, Paul Tudor Jones and Bill Miller have invested and touted its future. Blackrock CEO Larry Fink said Bitcoin is “gaining legitimacy as an asset class.”
Cryptocurrencies can no longer be dismissed as a “mania.”
Not only does Bitcoin have the potential to replace global fiat currencies, it’s already functioning as real money, accepted by thousands of institutions in developed countries, and with a payment system that’s very popular in poor countries without vast infrastructures. China and Venezuela are committed to national cryptocurrencies that they can control, and Iran has announced plans to use Bitcoin as part of its import settlement system.
Bitcoin’s value is derived from its underlying technology—which is an open-source ledger that keeps track of ownership rights and permits the transfer of these rights. It is both a money and a payment system, alive on its ledger—with the payment system (which eliminates third parties like banks) being the source of its value. The maximum number of bitcoins to be issued is fixed at 21 million, created through a system that cuts rewards for Bitcoin miners in half every ~4-years. The last Bitcoin won’t be mined until the next century.
Tudor Jones commented that “Bitcoin is in the first inning and it’s got a long way to go… it’s literally the only large tradable asset in the world that has a known fixed maximum supply.”
The greatest obstacle to monetary cryptocurrencies is government interference. Competition is not to be tolerated, and so in parallel with development of national fiat cryptos, U.N, U.S. and U.K. financial minions are busy crafting regulations. They might even declare certain cryptos illegal—as the U.S. did with gold 90-years ago. However, a prime example of the futility of ongoing government attempts to control crypto is Monero (XMR), which is untraceable and dedicated to remaining so.
Bitcoin’s decentralization provides assurance that it cannot be shut down. And although BTC is currently very visible, it’s also working with technologies which could make it opaque at a later time. If these digital monetary coins can’t be tracked, how will they be regulated?
Meanwhile, brilliant young male and female developers working in a free-market environment are creating advances at a pace with which stodgy government bean-counters cannot cope. Plus, the greater the number of Wall Street and other major financial players that pile in, the more difficult it would seem for regulators to pull the plug.
Considering current unprecedented global financial excesses and political tension, it’s hard to envision a collapse in interest in Bitcoin. One interesting current development is the apparent flow of safe-haven money from gold to Bitcoin, which is a better vehicle for moving money across borders.
Finally, worth reiterating: Bitcoin’s fixed supply limit stands in stark contrast to ever-expanding supplies of every national fiat paper currency.
Suggestions for new investors
- Since cryptos seem likely to become a permanent fixture in our society, you might as well learn about them first-hand—NOW—so as to profit during their rise to acceptability.
- Establishing a trading account may take some time and should be started without delay. You’ll need to disclose personal information, but establishing an account is free (it’s called an “online wallet”). We like Kraken but there are other reputable American-based exchanges.
- Make sure your bank is willing to support your crypto investment; some aren’t.
- While waiting for account setup, start your deep dive into cryptos and learn as much as you can. Plan to spend at least a little time on a recurring basis staying current.
- Take a position in Bitcoin and a smaller position in Monero, using dollar cost averaging or another incremental investing strategy. Learn how to buy & sell on the exchange.
- If digitally-challenged, get a trusted youngster to help you wade through it.
- After getting comfortable on an exchange, learn about wallets and hackers, and move from the exchange to a wallet in your personal possession.
- Learn how to spend your cryptos.
Standard investment caution applies: never invest money you cannot afford to lose.
There’s lots of help out there. We are among those immersed in this revolutionary development, publishing a weekly newsletter which you can preview here, and a 40-page Crypto Handbook that comes with an annual subscription to our weekly letter. You can also reach us by email. Good luck to you!