I started trading Bitcoin three years ago, but only as a speculative bet. I was also a newcomer at the time to both stocks and cryptos, so you can imagine I made my share of haphazard decisions. The biggest mistake I routinely made over and over again was not fully understanding the true value of Bitcoin. For far too long, I saw it strictly as a speculative play that could crash to zero at anytime. Instead of accumulating more, I was trying to trade bitcoin, which often resulted in panic-selling and buying back in at a higher price. It wasn’t until around July of 2020 that realized what Bitcoin was and where it is heading. It is a legitimate asset class. By comparison, gold is also an asset class. Just as gold has functioned as a store of value for several decades, bitcoin is digital gold. Bitcoin is and will remain synonomyous with Internet 3.0. We are currently still in Internet 2.0, but the infrastructure and reorganization of society for Internet 3.0 is being developed as we speak. I do think that bitcoin can and will eventually reach $500,000, then a million and possibly a few million per coin many years from now.
However, I am not what they call a “moon boy”. I don’t think the value of Bitcoin is going to take a linear path from the current price of roughly $55,000 to one million dollars by the end of 2021. It could reach $100,000 or even $150,000 sometime in 2021, but don’t be suprised if it drops back to $20,000 or even as low as $15,000 in 2022. It’s also possible that $60,000 ends of up being the top of the current bull cycle. It is true that institutions and Fortune 500 companies, such as Telsa have begun to buy bitcoin, but they are going to take profit at some point and buy back at a lower price. After the current bull cycle runs its course, it will likely be two or three years of an ugly bear market or what many traders refer to as a ‘crypto winter’. I wouldn’t be shocked to see the price of Bitcoin reach $300,000 to $500,000 sometime between 2024 to 2027. But, it has a long way to go before it reaches one million and there will be multiple gut wrenching capitulations along the way.
Rather than fixating on one million, $500,000 is the more intriguing price target in the next five to seven years. It is still early and there remains plenty of time to accumulate. I currently hold one Bitcoin and 11 Ethereum. I plan to sell all of my crypto during the current bull cycle. That could be tomorrow or six months from now. I could also just hold for the long term, but considering that Bitcoin has a tendency to correct by 75 to 90 percent, my plan is to accumulate more during the next bear market, which may be the last opportunity to buy Bitcoin under $25,000. However, if you are investing in the narrative that Bitcoin will hit astronomical prices of $500,000 to one million, then really anything under $100,000 in the next two or three years would turn out to be a great buying oppurtinity. It is essentially ‘rinse and repeat’. Until levels reach $500,000 to one million, Bitcoin should remain a highly volatile in the immediate future, but if the price actually reaches that astronomical level, it will likely stabilize significantly and fulfill its prophecy as a digital store of value. However, there is also no gaurantee that any of this comes to fruition. Bitcoin could also get banned at some point by all of the major world powers. It wouldn’t become worthless at that point, but it would be hard to see the price ever surpassing the current level.
If you are buying Bitcoin and other cryptocurrencies, it’s important not to get sucked into the hype. Of course, this is much eaiser said than done for the newbie. You don’t have to buy the absolute bottom and you don’t have to sell at the top. If your plan is to trade, then you just need to capture a generous portion of the bull market to make life changing profit. But remember that what goes up, must come down. I do believe that Bitcoin could reach $500,000, one million dollars and even a few million at some point in the future. However, is that going to be five years from now, ten or thirty? It is difficult to say. After all, there are precarious economic, political and social forces reshaping global society and there will be black swan events in the coming years that temporarily decimate markets. At the same time, these events could also create terrific buying opportunities. There are several arguments being made in favor of Bitcoin reaching an astronomical price target of $500,000 or more. For me, there are two justifcations that I find particulary convincing. One, Bitcoin is indeed digital gold and will serve as a store of value and as a legitimate asset class for generations to come. Second, Bitcoin represents Internet 3.0.
Bitcoin is digital gold
Although still a speculative bet, Bitcoin will soon become a legitimate asset class and eventually rival physical gold. Once it reaches the level of capturing some of the market share that would normally be reserved for gold, it may even surpass physical gold. Moreover, other large cap coins, such as Ethereum could compete with silver. If you are new to investing, then it is paramount to understand the significance of physical gold and other precious metals like silver. Gold and silver are the most legitimate stores of value known to man. Modern fiat, including the US dollar is not backed by anything. The Dollar, the Yen, the Euro and the Yuan are essentially printed notes of paper. They are assigned value, but modern fiat currencies haven’t been based on physical gold for decades at this point. The global finanical system is essentially flooded with monopoly money and debt. Gold, however, is actual money, a store of value and an asset class that holds its value despite catastrophic events like world wars, global pandemics and hyperinflation. Some even refer to gold as “god’s money”.
There are a couple of drawbacks to gold. One, it is expensive to store. You need to keep it in an expensive safe or pay a company to store it for you. Individual countries and multinational corporations hold copious reserves of gold. But again, it is expensive to keep it secured. While gold is fungible, it is cumbersome to physically trade or transfer large amounts of it across vast geographical zones. Bitcoin is also fungible, but virtual and large amounts of bitcoin can be transfered from one account to another in a couple of hours. Altcoins, such as Ethereum, Litecoin, Cardano, and etc can do the job in a manner of minutes or possibly seconds in the near future. And let’s imagine that Bitcoin is in fact digital gold and a legitimate rival of physical gold. The current market cap of Bitcoin is around 1 trillion dollars versus Gold, which is around 10 trillion dollars. The current price of Bitcoin is roughly $55,000 at the time of this writing. An ounce of gold is currently around $1800. It is feasible that during the next market crash and coming period of perilous inflation, the price for one ounce of gold could reach $10,000, which would create a market cap of around 55 trillion dollars. But maybe investors start flocking to Bitcoin instead of gold and the price of gold hovers around $2,000 per ounce or maybe $3,000. Where does the rest of that capital flow? It is likely to pour into Bitcoin. Hypothetically speaking, if Bitcoin reaches the current market cap of gold, which is $10 trillion dollars, then the price of one bitcoin should be around $500,000 to $600,000. Again, I don’t view Bitcoin as a lottery ticket, but rather as an emerging store of value and a legitimate asset class that is going to seriously challenge gold and silver.
Bitcoin will be a key pillar of Internet 3.0
The technological advancements of the past 100 years are almost incomprehensible and the world is once again set to advance by leaps and bounds in the next 10 to 20 years. The Internet will continue to develop to what will soon become known as Internet 3.0. Owning Bitcoin could hypothetically equate to owning a piece of the Internet. Just as we own land or physical assets, Bitcoin and cryptocurrencies allow each of us to own virtual private property. The Internet has drastically recreated global society in only three decades, but we are only getting started. Internet 3.0 will ensue the hyperacceleration of the Internet in terms of serving as a creative and destruction force of human civilization. For better or worse, the Internet is only going to continuously develop, evolve, stretch, grow and eventually engulf all aspects of modern life. In a few decades, Internet 3.0 will give way to Internet 4.0. While black swan events and possibly World War III may temporarily interrupt the continual development of the Internet, the virtual world and the physical world will eventually become one. This could happen in a global system based on either democratic or autocratic norms.
Internet 3.0 will provide the infrastructure to allow one to securely hold Bitcoin as a store of value and the scalability to easily pay for goods and services with cryptocurrencies. While some argue that Bitcion will replace the dollar as the world’s currency, I am a little skeptical of this argument. However, I do think that Internet 3.0 will allow Bitcoin to serve as a much needed secondary reserve currency for the global economy and other cryptocurriences will become a disruptive force in the global financial system. But it is important to keep in mind that Bitcoin doesn’t need to become the global reserve currency in order to reach a half million or one million dollars. It simply needs to be digital gold and Internet 3.0 will allow it to do so. When we actually reach that point is difficult to say. We are still in the early stagings of building the infrastructure for Internet 3.0, but it could be as soon as five years.
Should everyone be investing in Bitcoin and cryptocurrencies?
Investing in bitcoin is not for everyone and there are plenty of other avenues where you can put your money. However, I would argue that if you are a long-tern investor that contributes on an monthly basis to a 401k and you also invest in index and mutual funds, you should have bitcoin in your portfolio. How much you have really depends on how much risk you are willing to stomach. Bitcoin or any crypto for that matter is not a physical company. At least with gold and real estate, you actually physically see it. For the time being, Bitcoin remains a hypothetical asset, but the potential is certainly there. It is a speculative play, but if you buy into the narrative that we are embarking on Internet 3.0 and Bitcoin and possibly other cryptos, such as Ethereum will come to substitute or even replace gold and silver as a legitimate store of value, then devoting at least a small piece of your portfolio to it seems like a good hedge.
I currently have about 30 percent of my money invested in cryptocurrencies, all of which is in Bitcoin and Ethereum. Of the other 70 percent, most of that is invested on a monthly basis in either my 401k account, the Vanguard S&P 500 and then I have a small amount in gold and silver coins. While there are plenty of millennials that are going all in on cryptos, I would opt for more diversification. While I am sold on the Bitcoin narrative, it remains a risky bet. I do not plan to go above that 30 percent mark and I will likely get that number down to 20 to 25 percent in the next couple of years. Again, I am not a moon boy. We are not all into this together and we certainly are not all going to get rich. When it comes to investing in cryptos, my advice is to not take advice from the Reddit crowd or your buddy at work who just bought his first $1000 dollars worth of Bitcoin. Don’t get caught up in the hysteria when the price is in a parabolic uptrend and don’t have a meltdown when the price suddenly drops 20 or 30 percent. Do some research on what Bitcoin actually is and the compelling arguments for and against it. Another possibility is that it stays under $100,000 for the 10 or 15 years before reaching that astronomical number. At this point, the future is merely speculation.