This is the last of my bitcoin analysis - something to put on the shelf and keep for five years! This compliments Ryan's analysis who can help in finding a solid entry point.
Bitcoin’s viability as an investment option is symbiotic with the changing features of the global marketplace. Degrading trust in fiat currencies, increasing levels of electronic transactions and changing attitudes towards monetary exchanges are all driving Bitcoin’s growth as an alternative to the pre-internet economy. If these trends persist, Bitcoin has the potential to develop its own distinct monetary system, separate from existing global monetary structures.
Bitcoin as a Viable Alternative to Fiat Currencies
Globally, Bitcoin is an attractive alternative to many fiat currencies, particularly those which are adversely affected by political turmoil and rapidly changing supply chains. Venezuela is one example of a country that is going through a period of hyperinflation, with a cup of coffee costing 2,800 bolivars, up from 0.75 bolivars less than a year ago, representing an increase of 373,233%, according to Bloomberg data.
Another examples is the Turkish Lira, which went from ₺3 to the dollar in 2016 to around ₺5.7 this quarter.
People who live in countries whose currencies are in steady decline can protect their capital by shifting them into cryptocurrencies. This helps to explain why Bitcoin has become quite popular in many emerging economies. In South Africa, for example, the number of Bitcoin users rose by around 671% throughout 2018, and it’s worth mentioning that many African countries are also rapidly adopting Bitcoin for savings and ordinary purchases.
However, emerging markets are not the only source of growth for Bitcoin. Many developed countries are also investing in cryptocurrencies. In Japan, for example, over 3.5 million Japanese are said to trade cryptocurrencies, and around 84% of them are between the ages of 20 and 40. And although Bitcoin will not likely supplant the Japanese Yen, the existing trend seems to indicate that Japan trusts crypto.
Bitcoin vs Centralized Crypto
Bitcoin is not just an alternative to traditional fiat currencies. It is also an alternative to other cryptocurrencies, particularly centralized crypto, like Libra and JPM. Unlike Bitcoin, centralized cryptocurrencies are backed by companies and financial institutions, which makes them distinct from traditional cryptocurrencies which are not meant to be controlled by any central authority.
Also, centralized cryptocurrencies were not designed to hedge against inflation. They are also structured in such a way as to facilitate electronic transactions through online platforms, as opposed to anonymous and decentralized blockchains. Thus, centralized cryptocurrencies are not so different from most online payment processors, which means that they don’t pose a serious threat to Bitcoin’s niche or its growth potential.
Another problem is that blockchains become redundant if cryptocurrencies that they support are connected with fiat currencies or real life corporations.
In short, centralized cryptos are unlikely to threaten Bitcoin’s future growth. Not only do they lack many of the key features that make Bitcoin and other cryptos unique, they also don’t offer anything that may excite investors and online retailers.
Bitcoin as an Emerging Payment Option
The growth of Bitcoin is partly linked with mobile wallets, and various payment apps. As more and more people use these wallets, the more popular Bitcoin and other cryptocurrencies will become. One good example is Flexa’s SPEDN, which is affiliated with several retailers, including Whole Foods, Barnes and Noble, Nordstrom, Petco, Ulta Beauty and more. SPEDN combines online transactions with blockchain technology in order to simplify the online payment process, allowing customers to pay in Bitcoin and other popular cryptocurrencies.
Such apps have created new niches for cryptocurrencies in the mainstream retail industry, further enhancing their growth beyond small groups and niches. In the future, it’s also very likely that startups will begin to bridge the gap between cryptocurrency functionality and broader public demand.
Unlike 5G and automated vehicles, crypto transaction platforms do not require new infrastructure, nor do they require substantial investments. The infrastructure and services necessary for such services are already in place and ready for operations. Other technical issues with regards to crypto payments will also most likely be resolved in the near future.
Bitcoin and Banking
In addition to retail and online transactions, Bitcoin also has the potential to be integrated with the banking industry. As secure, anonymous and decentralized systems, blockchains and cryptocurrencies offer services that ordinary banks cannot replicate. However, despite these differences, cryptocurrencies actually have the potential to compliment the banking industry and the fiat system in general by removing certain costs.
For example, banks can potentially use Bitcoin and other cryptocurrencies to enhance their online transaction capabilities. They can also use crypto-payments to supplement their money order services, or create payment processor platforms that use a combination of cryptocurrencies and traditional online banking services, and provide their clients with additional options.
Finally, it’s worth mentioning that any new developments in crypto technology can only help banks and the fiat system. If the Federal Government does create a centralized cryptocurrency, the banking industry will most likely encourage bitcoin development since it opens up new markets and blockchain technologies that a Fed coin would be dependent on.
The Future of Bitcoin
Bitcoin will realize its full potential when it can be used for seamless, low cost digital transactions. Even now, numerous companies and organizations are accepting Bitcoin payments, including:
- KFC (through BitPay)
- Virgin Mobile
- Virgin Airlines
- Hotels.com (which offers small portions of Bitcoin as rewards for using their services)
This analysis is not saying bitcoin won’t experience volatility with the introduction of institutional trading, as global economic uncertainty grows, or as the younger generations seek alternatives beyond the debts they are inheriting. Over the next few years, bitcoin will be very volatile as the new technology strives for hockey-stick growth.
With that said, Bitcoin’s support level will rise over time, and therefore a strategic entry is important to withstand volatility and hold the asset over the next 5-10 years. The tipping point will be digital payments, as well as the free market propelling bitcoin forward.