One of the first questions we typically get is "Why would anyone use Bitcoin?" Even though this is a simple question, it's actually a very sensible one that requires a deeper look.
For starters, we need to define "use". It's hard to imagine using Bitcoin to buy a cup of coffee when you see it go straight up in value. Imagine if you used Bitcoin to buy a $100,000 Tesla when coins were still around $200 each. How about using 10,000 Bitcoins to buy two pizzas? With Bitcoin up over 650% in the last twelve months alone, anything you would have used Bitcoin for would have been extremely expensive vs. just using U.S. dollars or any other fiat currency. So far, the "use" for Bitcoin within a traditional consumer purchase mindset just doesn't make much sense.
But what if Bitcoin wasn't used for consumer purchases but rather to store value, similar to how we view real estate or gold? What if it was a way to hold on to assets across the entire world, independent of any government, bank or other third party? Let's investigate the main characteristics and trends that make Bitcoin a fantastic store of value. As we'll see, these traits make Bitcoin unique from all other asset classes.
1) An extraordinarily limited supply.
There will never be more than 21 million Bitcoins. Thus far, around 16.5 million have already been created with the remaining 4.5 million coming to market over the next several decades at a continually slower rate. If you were to own just 1 BTC, you'd be one of only 21 million people to ever own one, within a global population of 7.5 billion. Additionally, if you account for lost coins and major holders, that number is a lot lower than 21 million.
2) Rapidly increasing demand.
Over the past five years, we've seen a more than 100x increase in volume. This means buys, sells and general utilization of Bitcoin have continually increased. Utilization has led to some major scaling debates, which have only been implemented very recently through an upgrade known as SegWit. With the recent SegWit upgrade to Bitcoin, these transaction rates will likely soar from here.
3) Continual "halvings".
Miners get rewards for mining blocks. Every 210,000 blocks, the reward those miners are given is cut in half. The timing of these halvings typically occurs about every four years. The latest halving occurred last year with the next happening sometime in 2020. This results in less coins hitting the market and at a slower rate. With rising demand for Bitcoin, many equate the halvings to increased likelihood that the price will rise. In previous halvings, this has been a very sound strategy.
4) Bitcoin has no borders.
Fiat currencies have finite borders based on countries of issuance. This leaves international transactions open to government rules and multiple third parties. This results in tremendously inefficient payments across borders (and travel nightmares!). For example, if you transfer $100 USD to someone in Brazil, they may get $67.50 many days later, after international transaction fees and multiple middle men each take their cut. With Bitcoin, out of $100 USD, they'd receive lost to $99 USD and have it immediately, without any 3rd parties.
5) Unlike gold, Bitcoin is portable (gone are the days of lugging gold bars around!).
Bitcoin can be easily stored in an online wallet for short-term use. For example, Coinbase. While that may leave your coins vulnerable to hacking (and your general ownership), there are better wallet options such as buying a Trezor to more securely store your coins.
Gold, on the other hand, we don't need to say much there. You'd be better off buying the GLD ETF than to store gold coins or bars on your own. Historically, gold which is seen as a safe asset has even been seized before by governments.
Bitcoin vs. gold is entirely another topic for another post which we will cover in the future. But let's just mention that gold has a global value over $8 trillion vs. Bitcoin's $70 billion.
6) Increased access.
Most Bitcoin is bought and sold through exchanges such as Coinbase or Gemini. There's also many others such as Poloniex or Bittrex that offer the exchange of altcoins, most of which can only be traded with other cryptocurrencies, such as Bitcoin. The amount of exchanges, as well as the quality of these exchanges has skyrocketed over the past several years all over the world. This results in more individuals being able to buy and sell their coins at a moments notice.
7) Blockchain applications are skyrocketing.
Although we believe it's unwise to spend your Bitcoins on consumer purchases, there are many online retailers that accept Bitcoins as a form of payment. Expedia, Newegg, Dell, Overstock.com, just to name a few. There's been an interesting trend towards some of these companies actually holding on to their Bitcoins instead of just transforming Bitcoin to $USD or other fiat currency.
There are also many other applications in real estate, eCommerce and many other industries. For example, OpenBazaar, which as completely free online marketplace. Another example is being able to buy Dubai real estate completely online with Bitcoin.
In the coming months and years, we're going to see some mindblowing applications of Bitcoin as a form of payment but also a global ledger that bypasses many inefficient 3rd parties.
For all of these reasons (and many others), we believe Bitcoin is a scarce asset that should be considered as part of everyone's portfolio in a proper allocation. If Bitcoin continues its trajectory, we may be at the beginning of the greatest wealth redistribution in human history (and we do not say this lightly). This redistribution will be based entirely on Bitcoin as a store of value with the wealth distributed to those who hold on to their coins with a long-term horizon vs. short-term purchases and gains elsewhere.
We'd love to hear your thoughts, as well as any other reasons why you believe Bitcoin is a great store of value (or not) in the comments below.