Thanks to the efforts of state regulators, top-managers at a number of the most important financial organizations, and industrial consultants, public opinion regarding bitcoin and cryptocurrency is ever the topic of constant skepticism.
We have all heard that it’s considered a high risk asset, one which isn’t issued by any country’s regulator, as a national currency and also doesn’t depend on “the world’s best currency”, the USD, as it’s referred to by Donald Trump and is subject to volatility, etc. Are there any reasons, however, to not keep at least a part, if not all, your funds in cryptocurrency?
Attention! We strongly recommend not investing all assets in cryptocurrency, diversifying your investments and not keeping all funds in the same place. Also, research the technology and history of the projects you intend to invest in before buying any crypto assets.
In 2019 alone, bitcoin gained 290%. While the price plunged from a high of $20000 (as of December 2017) to $3209 (as of December 2018), we should not forget that during 2017 the price of the first cryptocurrency had increased 20-fold. Such volatility presents a high risk, but also a great opportunity to quickly increase financial capital. This attracts investors who are risk tolerant as well as the financial capital they are willing to risk. Thanks to their demand, one of the biggest traditional trading platforms, CME Group Inc (Chicago Mercantile Exchange & Chicago Board of Trade), has continued to trade the futures started by them which are linked to the value of bitcoin. Despite the cryptomarket drop of 2018, by June 2019, bitcoin futures trading had overcome all previous records.
“Cryptocurrency provides an opportunity that only appears once in a generation”, a market characterization provided by British investor and trader Glenn Goodman, who became famous for having turned his £3000 investments into £100000 during the world’s financial crisis in 2008, thanks to his investments. In May 2019, he published the book called “Crypto trader”, where he stated:
“I applied my long lasting experience in trading to a completely new market… Cryptocurrency is a Wild West in trading. It means that not only risks, but also profits are higher there…During 10 years, appeared a market with multi-billion profits, where the great fortunes have been made. Some of them, indeed, were lost with the same speed. But this happens on any new market. There are always drastic increases and drops”.
An important characteristic of any asset is liquidity, i.e. the ability to buy or sell assets for the price closest to the market. Cryptocurrency is an asset which has high liquidity due to its technical characteristics and the existing infrastructure of trading platforms. An investor can quickly get in and out of their position, and the technical development of the platforms that cryptocurrency trading goes through allows use of different tools to facilitate the trading. Starting with limit-orders, where an asset is bought or sold for a specified price, to robotic trading with the help of algorithms.
“One does not need millions to buy cryptocurrency, only the minimum is necessary to enter the market. To create an account on an exchange platform, a user needs only fill in a simple questionnaire and confirm the address of residence and that’s it. Funds are easy to deposit and easy to withdraw,” says Cossar Sohail, the executive operation director of the Bitlish cryptocurrency exchange platform, – “The essential is to choose the right trading platform, which has real and not falsified trading volumes and good liquidity”.
One of the traditional assets with the highest liquidity has for ages been gold. Bitcoin is often called digital gold. Bitcoin is seen as an alternative to gold not only by crypto-geeks, but also entrepreneurs with long lasting experience in new technologies such as Apple founder Steve Wozniak, venture capitalist and investor and one of PayPal’s creators, Peter Thiel, and billionaire investor Michael Novogratz. The resemblance between bitcoin and gold is also backed up by a certain correlation between bitcoin rates’ and gold’s price changes. The less stable and the more alarming the market situation is, the more active the investors are on “quiet” assets, such as gold. It looks like bitcoin is gradually getting the same reputation, despite its high volatility.
The situation in the worldwide market is alarming: investors are observing the decrease of sovereign debt profitability, the increase of the US budget deficit, the trade war with China, and central banks aggressive policies of turning on “the printing press” to stimulate the economy. “If central banks are that aggressive, the alternative currencies start to look a bit more attractive”, as recently stated by Jim Reid, the Deutsche bank Head of Global Fundamental Credit Strategy.
Unlimited and cheap transfers
Cryptocurrency is an asset that allows funds transfer either domestically or abroad quickly and for fees much lower than existing services. According to World Bank data, the funds migrants transferred to their families reached $529 billions in 2018. For countries having low or middle income levels, these transfers are one of the biggest sources of incoming funds.
The price of a bank transfer depends on the sum that is being transferred, but is rarely lower than $20-$30. If we talk about big volumes, we can count fees by the thousands. Thanks to the blockchain technology, which is the base for cryptocurrency, the price for sending funds changes dynamically, depending on the demand, and is almost always lower than the customer would pay if they use traditional banking channels. So, in October 2018, one of the bitcoin investors transferred 29,999 BTC (the price at the time being $194,000,000) for just $0.10. In May, another big bitcoin investor transferred $212,000,000 in cryptocurrency for just $3.93.
The absence of competition in the payment processing industry is one of the main problems in the world financial system, as recently stated by the Nobel prize winner Joseph Stiglitz in his author column. “As a result, customers, especially in the United States, pay several times more than the transfer should cost, making money for such companies as Visa, Mastercard, American Express, and banks are getting tens of billions of dollars of profit annually”.
Twitter founder Jack Dorsey points out that the Internet is not controlled by any company or any government, it’s a place for the people all over the world, that’s why the optimal currency for the Internet is bitcoin, “the currency without nationality”. According to him, the Internet currency should be transnational and give access to financial services without any barriers.
Growing customer base
Growth potential is what one should pay attention to while considering investments in an asset for the long term. Over 10 years, cryptocurrency has become more than a niche interest area for cypherpunks’ and IT-geeks’. It has become quite popular among a wider range of customers, mostly thanks to the opportunity to gain financial capital quickly. But it’s still early to talk about wide scale propagation worldwide. That’s exactly why the cryptocurrency market has the potential for growth.
As of now, the quantity of active addresses in the Bitcoin blockchain (as of July 2019) is 684,000. Ethereum has 325,000 active addresses. Litecoin has 62,000. So total just over 1 million persons actively use cryptocurrency. Already in 2020, the quantity of cryptocurrency users may multiply: several digit currencies created by popular customer services, such as social network Facebook or Telegram messenger, are expected to appear on the market. The Facebook customer base is more than 2 billion, and more than 200 million for the Telegram.
“Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world… This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone” , as written by Mark Zuckerberg in the middle of June 2018, when Facebook officially announced their intention to launch a digital currency.
The Facebook interest for cryptocurrency will attract interest in the first cryptocurrency, bitcoin, by association.
“First, Facebook is launching a cryptocurrency, even if it’s a stablecoin. Even for a traditional fiat currency, the main use is to buy financial assets, so for Libra the main use would be to buy bitcoin”, predicts Fundstrat Global Advisors founder Thomas Lee on Twitter.
Total control of funds
Finally, the main reason to keep a part of your funds in cryptocurrency is the fact that it gives investors total control over their funds. Bitcoin was launched in 2008, during the world’s financial crisis. Back then, at the end of October 2008, an anonymous developer or a group of developers under the pseudonym Satoshi Nakamoto sent out the description of the peer-to-peer networking of digital money allowing “digital transactions between participants directly, without any financial institutions”. The first block of the bitcoin blockchain, which had been acquired in January 2009, contained the headline of New-York Times: Chancellor on brink of second bailout for banks. In this manner, the bitcoin creator dropped a hint that bitcoin was an answer to the decrease of confidence in banks and the financial system.
According to the Nobel prize winner Joseph Stiglitz, interest in cryptocurrency reflects the growing defiance towards state institutions in general and the confidence that market participants are capable to create a collusion and have enough of political lobby to make sure this collusion would never be disclosed. “Each currency is based on the confidence that the money gained with hard word, “deposed” in it, would be redeemed on demand. Private bank sector has proved much time ago that it doesn’t deserve confidence concerning this”.
Decentralization, which bitcoin is based on, is above all the absence of the only point of refusal or control of the network from any central organization. The funds are property only to the person who has access to them, i.e. who has the pair of public and secret keys.
“Nobody can nationalize cryptocurrency, decide to devalue the share of private investors to save a bank from a breakdown caused by ineffective risk management, or to block access to funds for political reasons, which are more often taken in consideration when making economical decisions. It’s a completely new manner of asset posession, which has become possible thanks to the development of technology“, says Cossar Sohail, Bitlish executive operation director.