$BTC has seen a tremendous run, especially considering that it was flirting with the $15k level not too long ago. Today, the world-renowned token trades at close to $100k per coin.
From the outside, investing in Bitcoin seems to be a sure-win strategy to achieve financial freedom. However, as informed investors, we should always weigh the costs and benefits before deciding on:
1) Whether or not to buy $BTC
2) How much to buy
In this article, I'll go over some push factors, which push investors to buy Bitcoin, and pull factors, which pull investors away from the token).
The Pushes
We will first go over the significant push factors which make $BTC an attractive place to park your funds.
Store of Value
Ever since Nixon suspended the gold standard, the value of the dollar has seen tumultuous turns, and most would agree that the purchasing power of our money is often not in our control. In addition, we expect gradual inflation for the economy in the long run. As such, to preserve their purchasing power, we often see investors flocking to other tangible assets which hold their value and have potential avenues for appreciation — think gold, silver, and more recently, Bitcoin. The common trait among these options is their scarcity. Precious metals are a naturally occurring phenomenon, and certain cryptocurrencies like Bitcoin have a fixed supply. Holding such assets instead of cash, which is "printed out of thin air", does seem like a sound solution.
Historical Performance
Few investment instruments come close to Bitcoin in terms of historical performance — in fact, the token, which has achieved over 50% in annualised returns over the past 10 years, has completely crushed the returns of popular indices like the S&P 500 and the Nasdaq. When one looks at the price history of Bitcoin, it's difficult to decide against investing in the token, especially when it is so easy to purchase it now through a cryptocurrency exchange. When one considers opportunity costs, a rapidly appreciating digital asset like Bitcoin becomes significantly more attractive due to its historically ultra-high rate of return.
Adoption of Cryptocurrency and Blockchain
Cryptocurrency has come a long way since the days where Bitcoin was used as an alternative payment method for pizza. Apart from increased adoption from countries like El Salvador (which made Bitcoin legal tender), we also see massive developments in blockchain technology — most recently the tokenisation of real estate investment. This strengthens the case for allocating a proportion of one's investment portfolio to cryptocurrency or cryptocurrency-linked assets. In addition, if central banks and sovereign governments around the world start adding Bitcoin to their balance sheets (which is possible, though not confirmed, in the near future), then this further strengthens the case that Bitcoin is here to stay in the long run.
Profit Opportunity
With the significant price swings in Bitcoin, many opportunities for profit are born — especially on days where technical indicators like the Relative Strength Index (RSI), moving average convergence/divergence (MACD), stochastic oscillators and trading volumes point in the right directions. While this article is not meant to be a trading guide of any sort, the truth remains that with the right expertise, the profit opportunities presented by Bitcoin are endless. In addition, the sheer magnitude of price action makes trading Bitcoin, amongst other tokens, potentially more attractive than doing the same with stocks.
The Pulls
We will now discuss certain pull factors which may discourage investors from buying Bitcoin.
Valuation Concerns
One key concern with regard to Bitcoin is its fundamental valuation. Whether Bitcoin is considered cheap or expensive is largely explained by chart patterns and technical indicators, as opposed to tangible underlying factors. Buying a Bitcoin at $100k per coin right now could be a bargain, a rip-off, or just right — but nobody really knows. While intrinsic valuation of other traditional assets like stocks, bonds and real estate can be calculated fairly easily, this is not as straightforward for Bitcoin, or for any other cryptocurrency for that matter. Time will tell if the Bitcoin narrative plays out in the way that most Bitcoin supporters imagine — but till then, the fundamental valuation of Bitcoin remains largely speculative.
Volatility
Increased volatility present in cryptocurrency tokens like Bitcoin makes them less attractive to risk-averse investors, especially if they need access to the invested funds in the near future. Cryptocurrency tokens can see swings of over 20% within a 24-hour period, and this happens more often that most think. In comparison, we often need to see unexpected events like disastrous earnings reports, negative geopolitical developments and severe external factors like pandemics, amongst other things, to see equivalent moves in stocks and funds (at least for the commonly-known ones). As such, a large investment in Bitcoin may not suit everyone's risk profile, especially if the funds are meant for purposes which emphasise security over returns (for example, saving up for a wedding or planning for retirement).
Next Big Player
With the introduction of the proof-of-stake system, Bitcoin's traditional proof-of-work model faces intense competition from other tokens — most notably Ethereum. The general consensus is that while proof-of-work can be more secure than proof-of-stake, its cost and energy efficiency pales in comparison. Proof-of-stake is also considered to be more adaptable, with easier integration of smart contracts and greater network diversity. As such, even if one agrees that investing in cryptocurrency is a sound choice, Bitcoin may not be the first choice due to potentially significant opportunity costs, especially if the proof-of-work model is rendered obsolete in the future due to its high energy usage and low flexibility.
The Bottom Line
Ultimately, there is no right or wrong when it comes to buying Bitcoin. It all boils down to your risk tolerance and investment purpose. Some buy it to hold for the long term (or as the investing community would like to say, "diamond hands"), some trade it for profit during periods of heightened speculation, and some simply decide that the risk is too large and turn towards blue chip stocks and index funds instead. The most important thing is not buying Bitcoin, but knowing why you bought it.
