Bitcoin, the leading cryptocurrency, has been making headlines lately, as it reached new all-time highs and attracted more institutional and retail investors. However, some people may wonder if bitcoin is just a speculative bubble or a viable long-term investment. In this article, we will explore the reasons why bitcoin has a strong case as a long-term investment opportunity, based on its unique features, its growing adoption, and its macroeconomic context.
What makes bitcoin unique
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network, without the need for intermediaries or central authorities. Bitcoin was created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto, who published a white paper describing the protocol and the vision behind it. Bitcoin has several features that make it different from traditional currencies and other assets, such as:
- Scarcity: Bitcoin has a fixed supply of 21 million units, which will be reached around the year 2140. This means that bitcoin is not subject to inflation or dilution, unlike fiat currencies that can be printed or debased by governments. Bitcoin’s supply is also transparent and predictable, as it is governed by a mathematical algorithm that adjusts the difficulty and the reward of mining new bitcoins every 2016 blocks, or approximately every two weeks.
- Security: Bitcoin is secured by cryptography and a consensus mechanism called proof-of-work, which requires miners to compete to solve complex mathematical problems and validate transactions on the network. The network is distributed and decentralized, meaning that no single entity or group can control or manipulate it. Bitcoin transactions are also irreversible and immutable, meaning that once they are confirmed, they cannot be changed or reversed.
- Sovereignty: Bitcoin gives users full control and ownership of their funds, without the need for intermediaries or third parties. Users can store, send, and receive bitcoins using a software or hardware wallet, which generates a private key and a public address. The private key is the secret code that allows users to access and spend their bitcoins, while the public address is the identifier that allows users to receive bitcoins from others. Users are responsible for keeping their private keys safe and secure, as losing them or exposing them to hackers could result in losing their bitcoins.
How bitcoin is gaining adoption
Bitcoin has been gaining more adoption and acceptance in the past few years, as more people and institutions recognize its value and potential. According to data from Blockchain.com, the number of unique bitcoin addresses, which can be used as a proxy for the number of users, has increased from about 28 million in January 2020 to over 38 million in January 2024. The number of daily transactions on the bitcoin network has also increased from about 300,000 in January 2020 to over 400,000 in January 2024. Some of the factors that have contributed to the growing adoption of bitcoin are:
- Innovation and regulation: The bitcoin ecosystem has been evolving and innovating, as more developers, entrepreneurs, and companies create new products and services that make bitcoin more accessible, convenient, and useful. For example, some of the innovations that have emerged in the bitcoin space are the Lightning Network, a layer-2 solution that enables fast and cheap transactions; the Taproot upgrade, a protocol improvement that enhances privacy and scalability; and the bitcoin ETFs, exchange-traded funds that track the price of bitcoin and allow investors to buy and sell bitcoin on regulated platforms. The bitcoin industry has also been maturing and complying with the regulations and standards of the markets where it operates, such as anti-money laundering, know-your-customer, and tax rules. This has increased the trust and legitimacy of bitcoin among investors, regulators, and the public.
- Demand and supply: The demand for bitcoin has been increasing, as more investors, institutions, and corporations see bitcoin as a store of value, a hedge against inflation, and a diversifier for their portfolios. Some of the prominent examples of institutional and corporate adoption of bitcoin are MicroStrategy, a business intelligence company that has invested over $2 billion in bitcoin; Square, a payment company that has bought $220 million worth of bitcoin; and Tesla, an electric vehicle company that has purchased $1.5 billion in bitcoin and announced that it will accept bitcoin as a form of payment . The supply of bitcoin, on the other hand, has been decreasing, as more bitcoins are being held for the long term, rather than being sold or traded. According to data from Glassnode, the amount of bitcoin that has not moved for at least one year has reached a record high of over 12 million, or 57% of the total supply. This indicates that more bitcoin holders are confident and optimistic about the future of bitcoin, and are willing to hold it for the long term.
How bitcoin fits in the macroeconomic context
Bitcoin has also been benefiting from the macroeconomic context, as the global economy and the financial system face unprecedented challenges and uncertainties. Some of the macroeconomic factors that have been favorable for bitcoin are:
- Monetary expansion: The central banks around the world have been implementing unprecedented monetary policies, such as quantitative easing, negative interest rates, and direct money printing, to stimulate the economy and cope with the Covid-19 pandemic. These policies have resulted in a massive expansion of the money supply, which has eroded the purchasing power of fiat currencies and increased the risk of inflation. According to data from the International Monetary Fund, the global money supply (M2) has increased from $90 trillion in January 2020 to $120 trillion in January 2024, a growth of 33%. In comparison, bitcoin’s money supply has increased from 18.1 million in January 2020 to 18.8 million in January 2024, a growth of 3.8%. This means that bitcoin is a scarce and non-inflationary asset, which can preserve and increase its value over time, unlike fiat currencies that can lose their value over time.
- Geopolitical tensions: The world has also been witnessing increased geopolitical tensions and conflicts, such as the trade war between the US and China, the Brexit saga, the civil unrest in Hong Kong, and the political instability in Venezuela. These events have created more uncertainty and volatility in the global markets, and have undermined the confidence and trust in the governments and the institutions. Bitcoin, as a decentralized and borderless currency, can offer a safe haven and an alternative for people who are looking for more freedom, security, and stability. Bitcoin can also enable cross-border transactions and remittances, without the need for intermediaries or the interference of the authorities. Bitcoin can also empower people who are living under oppressive regimes or facing economic sanctions, by giving them access to a global and open financial system.
Bitcoin is a long-term investment opportunity, based on its unique features, its growing adoption, and its macroeconomic context. Bitcoin has the potential to become a global reserve currency, a store of value, and a hedge against inflation and geopolitical risks. Bitcoin also has the potential to disrupt and transform the financial system, by enabling more innovation, inclusion, and efficiency. Bitcoin is not without risks and challenges, such as volatility, regulation, security, and scalability. However, these risks and challenges can also be seen as opportunities for improvement and growth, as the bitcoin community and the industry work together to solve them and to achieve the vision of bitcoin.