Bitcoin has had a fantastic year – its value seems to never stop increasing – and its constant recurrence in the headlines may have piqued your curiosity as to whether or not it’s a good investment.
You may be wringing your hands, cursing yourself for not picking some bitcoin up on the cheap a few years ago. Indeed, as the Huffington Post reminds us (http://www.huffingtonpost.com/entry/bitcoin-future-global-currency_us_5936ea49e4b0c670a3ce68d9), a $100 investment in bitcoin in 2010 would be worth a whopping $75 million dollars today.
In much the same vein, you may be thinking that the time to invest has come and gone – that the value of bitcoin can’t go much higher, or that, even worse, the cryptocurrency is in a bubble that is about to burst.
In truth, though, unless you happen to have a time machine handy, there’s no better time to invest in bitcoin than right now.
Whether you’re skeptical about the value of a bitcoin investment, have been considering picking up some BTC for a while, or are merely curious about its viability as an investment, read on. We’ve laid out the reasons why you should consider investing in bitcoin in detail below.
Why do investors value BTC?
That was the price of one bitcoin at its record peak on June 11. Since then, its value has dipped slightly to a still respectable $2,590.57 as of the time of this article’s writing.
That price is impressive in itself, but it doesn’t exist in a vacuum. Considered over time, bitcoin’s steady increase in value is nothing short of astonishing. Using Coindesk’s helpful price tracking tool (http://www.coindesk.com/price/), one can look at bitcoin’s price from its inception up until the present day. Just over four years ago, on July 1, 2013, the value of a single bitcoin was $84.61. That means that bitcoin’s value has increased by nearly 3000% since then.
Simply looking at Coindesk’s chart, one can see that there has been a lot of volatility in bitcoin’s value over time, but despite the (admittedly sometimes quite large) swings in value, it’s undeniable even at a glance that the trend has been for bitcoin’s value to move steadily upward. This value is determined entirely by the perceived value that users, including investors and speculators, attach to it.
Some salient questions exist, then – why has the market continued to push BTC’s value upward over time? Where does its fundamental value lie, and does it have enough fundamental value to make it a sensible long-term investment? One way to answer these questions is by comparing the bitcoin market to other markets and industries with which it competes and shares similar intrinsic values.
It’s a great way to store value
Wences Casares, founder and CEO of Xapo, serial (in the good way) entrepreneur, and self-made billionaire, helps answer these questions in a highly recommended talk he delivered at the Chicago Ideas Week conference in 2016 (https://www.youtube.com/watch?v=IAFKJVLNVQA).
In his speech, Casares compares bitcoin to gold, arguing that gold’s value lies in its scarcity and the value society has therefore attached to it as a means of representing and storing value – it has been used as a “ledger,” if you will, for roughly 5,000 years. Of course, gold is not the only ledger used around the world. In fact, the primary international ledger currently in use is the US dollar, and before that, it was a number of other reserve currencies. None of these, though, has been able to store value as well as gold.
To paraphrase, Casares notes that if you had $100 in the 1800s, this was pretty valuable, roughly equivalent to a person’s yearly income. If you had saved that $100 simply as a $100 bill, today you’d have just that – $100 exactly. If, however, you’d exchanged it for $100 worth of gold and saved that gold until now, you would now have a person’s yearly income, circa 2017, in gold. Gold does an excellent job of storing value.
Further, it meets all of his criteria for being sound money – it’s scarce, divisible, portable, durable, recognizable, and fungible.
It’s pretty remarkable that this primitive ledger – a rare metal that we have for 5,000 years spent considerable time and resources to dig out of the ground – has never really been beaten as a way to store value.
Until now, that is. Bitcoin actually beats gold in all of the criteria for sound money, aside from fungibility, where gold comes out slightly ahead. As Casares says, “It’s the first time in 5,000 years that we have something that’s immensely superior to gold.”
Most notably, it beats gold in the key criterion of scarcity – the criterion that gave gold its initial value in the first place and has continued to do so over the millennia. There is an absolute limit of 21 million BTC to be mined – a perfectly defined limit in terms of scarcity. On the other hand, 2,500 tons of gold are mined yearly all around the world, according to OnlyGold (http://onlygold.com/FAQ/Gold-Facts-And-Statistics.asp). Looked at from this perspective, BTC’s perfectly defined scarcity means that it is, even more so than gold, an excellent way to store value over time.
In terms of divisibility – well, to put it simply, have you ever tried to shave $10 off of a gold bar? Once you buy a gold ingot, or even gold jewelry, that’s the form and size you’ll have it in forever, unless you happen to have a fully functioning smithy in your backyard (and the know-how to use it). Each bitcoin, on the other hand, is divisible up to one ten millionth of a coin, and it’s all done digitally.
Portability almost goes without saying. Have you ever tried moving or storing gold? Aside from the inadvisability of lugging around a suitcase full of gold for personal and financial safety reasons, the precious metal is heavy and, of course, you can no longer walk into a shop and buy what you need with gold ingots or doubloons. Contrastingly, you could have millions of dollars worth of BTC accessible from the smartphone in your pocket with no one the wiser, and that BTC is becoming an increasingly accepted form of currency worldwide, as discussed in a previous post (https://community.bitwage.com/t/where-to-spend-your-bitcoin/252). In terms of storage, we all know the reason Fort Knox is so hard to break into – it’s a physical repository for the bulk of the U.S. government’s gold reserves. Governments, banks, and individuals need to adopt costly security measures in order to protect their stored gold. Of course, you need to adopt security measures with your BTC, too, but doing so is much simpler and cheaper than the measures one would need to take to protect a serious investment in gold.
Bitcoin is much more durable than gold as well. We’ve all seen movies or TV shows where someone bites a gold coin to determine whether it’s genuine or a counterfeit. Although this isn’t a recommended way to assess the authenticity of gold, this cinematic cliché delivers a worthwhile point – gold is malleable. Extremely malleable. While this malleability makes gold easy for jewelers to work with, it also means that it can not only bend but also wear down, be scratched, or even break over time, depending on the form it’s stored in and its karat. As a digital currency, bitcoin is susceptible to none of these problems. Indeed, since bitcoin is stored on thousands of computers around the world in the blockchain, any chances of BTC being destroyed or damaged in any way are unrealistic.
Recognizable – ever heard of fool’s gold? Would you be able to tell the difference between that and the genuine article? Between the various other types of counterfeit gold and the real thing? Gold is much easier to counterfeit than BTC.
So why are all these comparative aspects of gold and bitcoin so important? According to CoinMarketCap (http://coinmarketcap.com/), bitcoin’s current market cap is roughly $42 billion. And according to OnlyGold (http://onlygold.com/Info/All-The-Gold-In-The-World.asp), gold’s current market cap is roughly $7.5 trillion. The fact that bitcoin can not only potentially compete with the massive gold market, but is actually superior to gold as a form of sound money and of storing value (thereby pointing to its strength as a competitor), is a primary reason pointing to its value as an investment.
It’s a great way to move money internationally
Another reason investors recognize the value of bitcoin is because of its ideal nature as a means of moving money internationally.
On a face-to-face basis, transactions are and always have been quite simple. I want to buy something from you, so I hand you a dollar; if I wanted to do that in, say, 1600, I might hand you a golden doubloon.
As soon as I want to do a transaction with someone not in my immediate presence, though, I need a third party. This is why banks, credit cards, and a variety of other financial institutions have cropped up over the years – when the transacting parties are not physically together, they need a trustworthy middleman to verify and handle the transaction.
Jonathan Chester, founder and President of Bitwage, explores this highly valuable aspect of bitcoin in more detail in an article for yBitcoin (https://ybitcoin.com/articles/payroll/).
He uses Uber as a concrete example to illustrate the problems with conventional systems of moving money internationally. To pay its international contractors using traditional means, Uber can “either incorporate and build banking relationships in every country, working with non-user-friendly interfaces and old, low quality APIs, or they can go through several slow and costly integrations of multiple platforms.” Whichever method Uber chooses, its contractors “are left with no choice but to accept high forex costs and slow, unreliable transfer times. According to the World Bank, the average of cost of sending funds across borders is 8 percent, and the average time for transfer completion is three to five days, with workers shouldering the bulk of these costs.”
Ultimately, as Chester notes, the reasons for the costs in both time and money for moving money internationally come down to something called the correspondent banking infrastructure. A bank in Country A that is moving money to a bank in Country B might not have direct contact with said bank. Instead, the transferred money moves through a series of correspondent banks. During this process, the sender and receiver typically have no way of tracking their funds, or sometimes do not even know how many correspondent banks are involved. And, at some point during this process, the currency conversion is made; perhaps surprisingly, this currency conversion is the main cost burden of the entire process. This whole process can often lead to delays of one to two weeks, along with the aforementioned problem of being unable to track the process in real time.
Because of this process, receivers feel “the stress of not only not knowing when the funds will hit their accounts, but also not knowing where the funds are or even whether the funds will ever reach their destinations,” and senders typically face “increased customer support costs and less time to hold onto the working capital used to pay employees and contractors.”
In stark contrast to the correspondent banking system, transferring funds via a system using bitcoin and the blockchain, such as Bitwage, removes the intermediaries, leading to a streamlined system for transferring funds. With the potentially numerous correspondent banks removed, fees and transfer times are greatly reduced, employers often receive better rates than the interbank rates, and employees and contractors can access their funds the next day. Further, this system is transparent, meaning both employers and workers can track their funds and rest assured that they will indeed reach their destinations.
As we did with gold, let’s compare bitcoin to the aforementioned industries. According to the Pew Research Center (http://www.pewglobal.org/interactives/remittance-map/), nearly $600 billion USD was sent via remittances in 2015. According to MafiFX (https://mahifx.com/mfxtrade/blog/forex-the-53-trillion-dollar-a-day-market), the global foreign exchange volume reaches $5.3 trillion per day. Bitcoin’s ability to streamline and facilitate the flow of such massive amounts of money contributes greatly to its value, providing another reason why the market has been nudging its value up steadily over time, and even more quickly in the relatively recent past as knowledge of its potential has entered the mainstream consciousness.
Looking at the qualities of BTC discussed so far – to put it simply, its ability to store value and to move money internationally – and comparing its potential ability to compete effectively with the truly massive gold and foreign exchange markets (not to mention the traditional banking system), it’s easy to understand its fundamental value. Investors recognize this, which is why they are continually investing in BTC and pushing its price up.
As of now, the bitcoin market is still young, and the value of BTC will only increase over time as it begins to be further utilized to compete with the existing gold, foreign exchange, and correspondent banking industries.
So from an investment point of view, the best time to get in is now – while it’s still early.
So how do I invest in bitcoin?
You’ve read this far, and maybe now you’re wondering how one goes about actually investing in bitcoin.
Many BTC speculators try to bet on when the price will be high or low, always attempting to buy on the low and sell on the high. Needless to say, such speculation is risky, and investors often mess up and lose money when doing so.
Of course, it does provide a certain excitement, conjuring up images of fervent investors on the floor of the New York Stock Exchange, or perhaps even scenes from The Wolf of Wall Street. But it’s not the best long-term investment strategy. (As a related side note, a previous post (https://community.bitwage.com/t/where-to-buy-bitcoin/294) covers a wide range of options for acquiring BTC).
A sounder investment strategy is dollar-cost averaging, which provides a way to invest over the long term rather than using lump sums for uncertain short-term bets on BTC’s price. Think, for example, of a 401(k), a long-term investment that takes a contribution from each paycheck – you set it and forget it (for now), and reap the benefits in the future.
But where can one find a 401(k) for bitcoin?
The answer, of course, is Bitwage! It does just that, allowing you to set aside a portion of your income to be received in BTC each time you get your paycheck.
Further, Bitwage provides certain competitive advantages for investors over other available options.
It’s fast, with funds delivered the next day. Additionally, there are no limits to our platform – you could receive, say, $100 or $100,000 in BTC.
All of the funds are sent directly to any wallet of your choosing, meaning you have control of your own funds and don’t have to worry about the risk of a third party being hacked. As another step to secure your funds, we have iOS and Android apps that each include an in-house authenticator to turn off SMS, allowing you to easily protect yourself against SMS porting hacks.
In terms of capabilities, we have unique EU euro accounts, local US & UK accounts, and the ability to dispense funds in CAD, JPY, AUD, and CHF.
And you don’t even need a bank to use Bitwage. This is great for people who want to get into BTC but are unbanked, or for international contractors who want to receive bitcoin at US or EU prices – Bitwage is currently the only way to do this.
Finally, using Bitwage to acquire your BTC ensures that you won't risk having your account closed down because your bank doesn’t like you doing bitcoin transactions. Take a look at this reddit story (https://www.reddit.com/r/Bitcoin/comments/5mzwla/chase_is_closing_my_account_due_to_bitcoin/) for a recent example of this sort of thing and the massive headaches it can cause.
So there you have it – a brief overview of why bitcoin is a worthwhile investment, and how you can use Bitwage as a smart, no-hassles means of managing your BTC investments.
As a final word, do note that this post is for informational purposes only and is not intended as professional investment advice. As with any investment, make sure to do some thorough research about investing in bitcoin so that you can be aware of both the potentially huge benefits as well as the risks involved.