Have you heard anything about Bitcoin recently? Why do you think so? Why is everyone talking of Bitcoin now but now a few months ago? And is it the right time to get into Bitcoin? Before we get to the actual point, let me give you a brief introduction of what Bitcoin is.

Bitcoin is the first-ever cryptocurrency created by an anonymous person, Satoshi Nakamoto in 2009. A cryptocurrency is a digital cash that runs on blockchain technology. Every currency is operated by some Government but Bitcoin is a currency that runs on code. There are some set of protocols which cannot be manipulated and that's how it functions. No one can authorise or shut down Bitcoin.

Should you invest in Bitcoin?

Bitcoin is not just it's value. Today its $30,000, yesterday it was some amount of dollars, tomorrow its value maybe something. We are going to discuss why it has that value and why it can have that value or even more value!

Just like what we do before we invest in the traditional market like equity, gold or real estate i.e., the Fundamental and Technical analysis, we are going to do the same here for Bitcoin. We are going to see whether and how strong Bitcoin is fundamentally and technically.

Fundamental Analysis

Just because I put fundamental analysis here doesn't mean it would be same as we do for a company. Bitcoin is a cryptocurrency, it is definitely a type of currency and hence we would analyse how it works and compare it with the top existing currencies.

First things first, a currency is just a medium of exchange and nothing more. So to be a medium of exchange it must be agreed by the two entities who make the transaction. What decides the value of a currency? Its the government. The government decides how much of currency there should be in the circulation, they can add or remove currency from the circulation whenever they want. These currencies are not backed by anything. No, not even Gold. Just because they have Gold or other superior foreign currencies in their reserves, we cannot say the currency is backed by Gold. They have that value just because the Government issues them. These are called Fiat currencies or Fiat money. 

US Dollar, Great British Pound, Indian Rupee, Japanese Yen, Russian Ruble etc all these are fiat currencies. Governments can print whatever amount they want and they still have value until two persons engaged in a transaction accept them. 

Then why don't all currencies have the same value? Why USD is a Global currency?

If a country's currency has more value than others, it doesn't mean the country or the economy is stronger. The price difference depends on various factors like economic policies, government stability, imports and exports etc. After World War II, the US had the largest gold reserves in the world and according to Bretton Woods agreement in 1944, USD had been entitled as the Global reserve currency and so countries had to hold US Dollars, Bonds and Bills in their reserves. But in 1971, President Nixon called off the gold standard but still then the US Dollar is a global reserve currency till now and the supply of the USD has gone parabolic over time and we don't know when all these are going to change.

Now let's get to Bitcoin. Bitcoin is created by a person in 2009. He chose the maximum supply of Bitcoin to be 21 Million. And the only way, Bitcoin is created is by a process known as Bitcoin Mining and that's also how bitcoin network functions. When Satoshi Nakamoto started bitcoin mining in 2009, 7200 bitcoins were created every day and this supply halves itself every four years(Bitcoin Halving), now 900 bitcoins are being created every day. This goes on until the total supply of Bitcoin i.e., 21 Million are mined. Until now, 18,612,825 bitcoins are mined/created and that is the circulating supply of Bitcoin(at the time of writing this article). This is a process and no one can manipulate this. 

Now we know that whatever is scarcer has more value. With the unlimited supply and printing of USD, USD can keep flowing into Bitcoin. Note that one Bitcoin is always one Bitcoin. Just like currencies have relative price differences, Bitcoin is valued at what so ever price. If we can say, Bitcoin has increased in US Dollars, we can also say Dollar is decreased its value in bitcoins. We can only compare Bitcoin's value relative to other currency and why its value keeps on increasing is due to its limited supply, increasing demand and increasing adoption. Not even 2% of people in the world still use Bitcoin. So you're still ahead in the race.

And one more thing we need to discuss is, why it is used and by whom? How do you transfer your funds? Do you transfer money internationally? You might use banks but Bitcoin solves the big problem that's been existing since ages. You can transfer any amount of Bitcoin to anywhere in the world and that too within ten minutes or less with very minimal fees. You don't need banks or any middlemen for this transaction to occur. And no third person can know between whom this transaction has occurred. 

The largest transaction has happened when about 92,000 bitcoins which were worth one Billion dollars were transferred in a single transaction with a fee of just $3. On an average, 1.5 Billion USD is transferred in Bitcoins every day. The value may peak up to 10 Billion dollars. So if you ever need to transfer large amounts of money, Bitcoin is the better way. So these are the fundamentals on which Bitcoin is existing. And it is just the beginning.


Technical Analysis

In 2009, Bitcoin had no value at all. In 2010, a man traded 10,000 bitcoins for two pizzas. Later, Bitcoin was traded on exchanges. Mt.Gox was the biggest Bitcoin exchange then and it was hacked for the first time in 2011. About 2000 bitcoins were stolen and Bitcoin crashed from $33 to $1. Enter Silk Road, the first online black market on Dark Web. All the transactions on Silk Road took place through bitcoins and the value of those transactions amounted to be about 9,519,664 bitcoins from Feb 2011 to Sep 2013. And then the founder of Silk Road, 'Dread Pirate Roberts' was arrested and FBI seized 144,000 bitcoins. Over the course of the next two years, Bitcoin crashed from $1100 to $200. 

After the third bitcoin halving in 2016, Bitcoin's price skyrocketed from $600 to $20,000 in 2017. This is the time when Bitcoin gained major traction and I heard bitcoin for the first time. Next year, it tumbled to $3,250 and just after few months, Facebook announced that it was going to launch a stable cryptocurrency 'Libra' and Bitcoin came to life to reach $13,900. After trading around $10,000 for more than a year, Coronavirus happened and Bitcoin sunk from about $8,500 to $3,900 in March 2020. 

After that, it's been a roller coaster ride for Bitcoin. Bitcoin hit a new all-time high of $42,000 in 2021. All that I assume was because Paypal started allowing its users to buy and sell bitcoin straight through their application and institutional investors and companies like Grayscale and Microstrategy buying huge amounts of Bitcoin. Bitcoin is trading around $32,000 at the time of writing this article. That was a bit of short narrative of the bitcoin story.

Whenever Bitcoin crashed, it was assumed to be dead, but it emerged victorious all the times. And as I said institutions just started buying Bitcoin, and it is just the beginning of a new era. Bitcoin might become the Global Reserve currency after all.

Bitcoin is always fundamentally strong as an investment but due to its volatile nature, you can always wait for dips to buy or employ Dollar Cost Averaging to maximize your returns.

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