The Inflation Hedge — Bitcoin
Everything written is expressed as an opinion of the author and is Non-Financial Advice (NFA) — please do your own research before buying into any cryptocurrency!
1) 21 million Bitcoin in the world, 14 million in circulation, approx. 4 million lost
2) The price of Bitcoin has only ever gone up in the long term
3) ETF news and adoption is widespread — CEO’s and institutions are now investing in Bitcoin
4) Bitcoin is a superb inflation hedge
5) Bitcoin has gone up ~450,000% in 10 years compared to S&P500 (~270%) and Gold (~0%)
6) Whales/institutions are taking Bitcoin off exchanges and into their cold wallets!
1. Brief Intro
Everyone’s heard of Bitcoin now. Are we early — I don’t think so anymore. But is it too late to buy BTC? I also do not think so!
BTC, AKA the king of all cryptocurrency, is a decentralised digital currency that can be sent P2P via the bitcoin network. It set the precedence for the Proof of Work (PoW) mechanism where miners are required to validate transactions on the bitcoin network, ensuring speedy transactions, for a certain fee.
Having launched in 2009 and steadily increasing over the last 12 years, BTC seems to have reached a level where it is somewhat considered a “safe asset”. Here’s a quick infographic before we dive deeper into why I’m so bullish on BTC over the long term!
a. Historic BTC price
BTC is known for it’s price fluctuations but in the long term, there has only been ONE direction for BTC.
In essence, if you ever purchased in previous bull markets, you would not have lost money if you held it through to today. It has definitely been a lot more violent and aggressive than what the above logarithmic chart shows, however, just to illustrate the picture clearer (you won’t be able to see the growth in 2013, such is the parabolic movement).
On a non-log scale, just see how crazy the growth has been. Yet, I (and I’m sure a lot of you readers out there) believe that this is far from the end. Obviously there are perma-bears out there who will always say that Bitcoin will go to 0 *ahem* Peter Schiff *ahem* but, newsflash:
WE’RE CLOSER TO 100K than to 0!!! 😊
Anywho, let’s look at the news of BTC in further detail:
i) ETF news and adoption
Proshares Bitcoin ETF (BITO) was approved and listed for trading on the NYSE on October 19th and although I have a whole cacophony of reasons why I don’t think this ETF is great for the Bitcoin price (we can cover this another day), it has been great for the AWARENESS of Bitcoin and crypto in general.
Just to prove my point, you can see here that BITO had real hype and increased the price drastically from roughly $46k to $65k (a ~50% increase); this was the pure definition of buy the rumour, sell the news, but of course, we are HODLer’s. Since that news, BTC has ranged within the $58k to $68k region and I am not opposed to Bitcoin rising steadily!
Now talking about awareness of Bitcoin, this is one of my all time favourite tweets.
Exactly, exactly, exactly. 11 years ago, nobody had even heard of/believed in BTC, I myself am included in this. I always thought BTC was a farce, it was going to be regulated, governments were going to ban it, BTC was only used for illicit activities etc. If you told me in 2010 that I would be sitting here writing about Bitcoin and cryptocurrency, I would have laughed and dismissed you, but times have changed!
Why listen to me though? You have a number of Bitcoin whales who have changed their minds throughout the last 5 years. Just look at this video from Kevin O’Leary aka Mr Wonderful from 2019, yet his crypto holdings now amass roughly 10% of his investments!
Still not convinced by the increasing awareness of Bitcoin? How about this humble list of CEO’s who now hold Bitcoin as part of their investment thesis:
· Elon Musk
· Jack Dorsey
· Kevin O’Leary
· Tim Cook
· Paul Tudor Jones
· Ray Dalio
· Peter Thiel
· Michael Saylor
· Raoul Pal
· Winklevoss Twins
These billionaires are expanding their investment portfolio with BTC — you decide whether you want to jump in to swim with the whales.
ii) Hedge against inflation
Ok, I will be blunt here. If ever the USD currency went into DEFLATION, BTC is useless. The whole premise and algorithm that Bitcoin was built upon was to combat inflation to our fiat currencies and especially given the pandemic of C-19, there hasn’t been a more telling time.
We could go into a whole essay of why inflation has steadily increased AND is unlikely to decrease within the short-medium term because of ever-increasing debts, the Evergrande crisis (Lehmann Brothers 2.0?), the quantitative easing measures applied for Covid etc.
However, TL;DR, inflation has hit a 25 year high at 6.1% announced on 10th November 2021 and in my honest opinion, a very under reported number — just look at the Shadow Govt Stats below to have an alternate view on inflation!
Long story short, our money, if left unattended or in bank fixed deposits will be eaten up alive by inflation. Just look at the table below to see how quickly your money becomes “worthless”.
Just some perspective — we are well above 7% inflation year on year, so the worst case scenario if everything remains ceterus paribus, $1 million today may be worth HALF in 9 years time — let that settle in!
iii) BTC vs Gold vs S&P 500
We all know how high stock markets around the world have risen to ATH’s in recent months — a mix of money printing & people staying at home gambling on stock markets, however, just let this table below sink in.
Had you invested in the S&P 500, in 2011, great, you would have tripled your money (just about).
Had you invested in Gold — you’ll have lost a bit of money (haha)
HOWEVER, had you invested in Bitcoin — boy oh boy, even $100 would have turned into $458k in 10 years. Now, I’m not saying that we could have seen that coming (some will argue they could have), but what I’m saying is, I wish I wasn’t so quick to brush off Bitcoin and cryptocurrency in their heydays.
iv) Supply shock — on chain data
BTC works on a typical supply and demand curve — the higher the demand, the higher the price, the lower the supply, the higher the price.
What we can see, is that the net exchange of BTC are reducing. What that means is, people/individuals/institutions are removing a significant amount of the Bitcoin supply from exchanges (hot storage) and putting it into their personal wallet (ledgers, trezors etc — cold wallets) where they will store the BTC for a longer period of time. FYI, this is usually a bullish sign as exchanges are made for exchanging (duh!) for liquidity, whilst cold wallets are known for HODLing (Just don’t lose your secret recovery phrases!)
As more coins are bought and taken to cold storage, supply shock is bound to take effect and the Bitcoin price is likely to get a significant boost over the next 10 years because of it.
Bitcoin is here to stay, regardless of all the FUD and regulations. In fact, I welcome regulation! It’s the only way larger institutions will be able to invest into Bitcoin! Regardless of Bitcoin’s halving cycles and the proverbial bull run every 4 years, Bitcoin is and will always be coded to rise as inflation and time rises. Now that being said, there is always that 1% chance that Bitcoin goes to 0 and cryptocurrency is a thing of the past but, as with the internet and as with any new technology, fads come and go but the strong remain; I’d be willing to bet that Bitcoin will always be one of the strongest horses.
I’ll post a second series regarding the technical of Bitcoin as to not clog this post up, but until then, thanks for reading and have a great day all!