Bitcoin is approaching new all-time-highs and, within the next few months, looks set to surpass the record seen during the last frenzy of 2017. This will mark the early stages of the impending 2021 frenzy.
Bitcoin traded at levels close to $20,000 (USD) per bitcoin in December 2017, after surpassing $1,000 (USD) in December 2016, the first time it had done that since 2013, which, at that time, was the all-time-high.
Looking ahead, based on historical precedent, Bitcoin prices will likely surpass $50,000 (USD) and approach $100,000 (USD) by the end of 2021. To the uninitiated those are unimaginable levels, but it’s a very conservative estimate if you understand the rationale behind it.
Tom Fitzpatrick, Senior Analysts at US based Citibank, (one of the world’s largest banks) recently published a report targeting a price of over $300,000 USD per bitcoin by December 2021. A quick Google search for “Citibank” and “Bitcoin” will yield a long list of articles from which to take your pick.
And there are some within the Bitcoin industry that have even higher price targets, based on rational analysis. The truth is, however, no one really knows. Not until after the fact. What is crystal clear though is the general upward trend.
Because the world is waking up to the fact that, in money, scarcity of supply matters. And whereas the 2017 frenzy was driven by retail investors, people like you and I with a bit of savings to invest, the impending 2021 cycle seems driven by institutional investors who can deploy more capital in a single trade than what retail investors accomplished on a monthly basis in 2017.
This off course leads to some people making informed decisions and good investments. But it also leads to many more people losing money as a result of FOMO and uninformed decision making. This is exactly what happened in 2013 and 2017.
Because, if you’re asking yourself whether you should invest in Bitcoin or not, and whether you should invest now or later, you’re asking yourself the wrong questions.
Instead, what you should be asking yourself is: “How well do I understand it?”
I am not a financial adviser, but I understand Bitcoin well enough. And regardless of what you’re looking at, avoiding bad decisions is more important than making all the right decisions.
Over the course of the last 7 years I’ve seen it happen again and again. People get into Bitcoin with the wrong expectations, as a result of inadequate understanding, and make decisions that they later regret.
You wouldn’t buy yourself a superbike and drive it down the highway at breakneck speeds if you’ve never been on a bike before. That’s obviously dangerous. And neither would you take your new superbike for a spin on the beach. Superbikes don’t belong on the beach.
So why approach Bitcoin any differently? Why risk getting involved without first understanding what it is, what it was designed for, and how it works?
For instance, ask yourself, why does the Bitcoin price follow a (more or less) 4-year cycle?
Why is it, that after being launched in 2009, significant new all-time-highs were set in 2013, 2017 and now again (likely) in 2021? Why not a 2 year cycle, or a 6 year cycle? Why a 4 year cycle?
Also, where does new Bitcoin come from? How does that process work and how is it related to the security of the network and the 4-year price cycle?
Before you consider investing, you should consider the fact that, when the previous all-time high was set, in December 2017, the total supply of bitcoin in circulation was approximately 16,7 million. Now, three years later, it stands at 18,5 million.
Where did that extra 1,8 million bitcoin come from?
And, if approximately 16 million bitcoin were created in its first nine years of existence (Jan 2009 – Dec 2017) at an average rate of well over 1,5 million per year, why was only 1,8 million new bitcoin created in the following three years (Dec 2017 – Nov 2020) at a rate of less than 600k per year?
Why is the rate of production slowing down significantly, how is it controlled and, again, how does this relate to the 4-year price cycle?
Most importantly however, ask yourself: “What’s my time preference here? Do I expect to get rich overnight, or am I prepared to hold this stuff, and what do I understand about the safest way of storing Bitcoin?”
These questions may sound confusing and if you get into the nitty gritty it does become very complex, but just like a superbike, you don’t necessarily need to understand everything about engine mechanics to drive it safely.
You just need a basic understanding that goes deeper than hear-say and popular catch phrases. And maybe a helmet.
Bitcoin is not going away. Just like its price, when looked at from a long term perspective, Bitcoin adoption is steadily growing. And for good reason.
Because, if you understand what it is, and how to use it, it’s the safest and most secure form of money ever created. But nothing comes without a price and the price for that safety and security is a basic understanding of how it works.
Read more here:
Bitcoin. How does it work?
There are countless examples of people who bought into Bitcoin with the wrong expectations and made regrettable decisions as a result. Which is to be expected when a sophisticated tool is used incorrectly.
So why am I writing this? Why not just stand back and watch the madness repeat itself?
I want to help because Bitcoin has the potential to transform our world in very positive ways, by eliminating (or at least reducing to a minimum) corruption at the highest levels. But for that to happen a widespread understanding of its underlying mechanics is first needed.
Send me an email if you’re interested in avoiding a bad decision.
None of the above represents investment advice. Views expressed here are for informational purposes only. Consult your financial adviser before making any investment decisions.