The first thing to say is that this is not an article explaining what Bitcoin and other cryptocurrencies are, as there are numerous articles, individuals and media outlets that will do a far better job than this article. What this article is trying to do is explain that with blockchain technology use cases escalating and institutional buy-in to Bitcoin just around the corner, the best time to allocate Bitcoin (BTC) or other cryptocurrencies into your portfolio as a hedge against inflation is now. If you are looking to track your cryptocurrencies and other digital assets, check out Prillionaires’ portfolio tracker app.
But first, something needs to be understood. That is the huge swings in prices that are homogenous to bitcoin and the wider cryptocurrency market. What do retail investors hate seeing? Red. Ultimately, there are two reasons individuals of a certain age do not invest in cryptocurrencies.
Why retail investors choose not to buy Bitcoin (BTC) and other cryptocurrencies.
- Volatility. Monumental price movements, to both the upside and the down. It’s very true that to invest in cryptocurrencies you must have diamond hands; be willing to see your coin fluctuate by over 50% in value. This is part and parcel of cryptocurrencies and emerging markets. It is for this reason that individuals with a portfolio of a significant amount are unwilling to invest in crypto. But what’s that famous quote? ‘No pain, no gain’. If crypto had a slogan, it would be this.
- Unwillingness to learn about the utilities of blockchain and cryptocurrencies; you can’t teach an old dog new tricks. To make successful investments, you must be willing to learn about and understand new technologies even if initially they seem impossibly complex.
Why you are wrong to ignore Bitcoin
Regulation and institutional buy-in
What is currently holding back institutional buy into the cryptocurrency markets is a lack of regulation. However, this is soon to change with promises in the US to increase regulation by late 2022. This is likely to have a Domino effect throughout the world economy. Firstly, when the largest economy in the world begins regulating a certain market, others are bound to follow suit, but this is not the point. What cryptocurrency regulation will bring, is a higher degree of security to the market, diminishing the scepticism regarding hacks and scams. This is when institutions and governments will start buying bitcoin, having a knock-on effect on the wider crypto market. In recent history, regulated markets usually coincide with an explosive move to the upside.
What will happen when Institutions buy Bitcoin?
Take Apple as a case study; by market capitalization, they are the most valuable company in the world – near $3 trillion. They are projected to have around $200 billion in cash. Once the crypto markets are regulated, how much of this is going to enter Bitcoin as a hedge against inflation? Just a 5% stake of this cash equates to $10 billion. If every major company takes just a 5% stake of their free cash into Bitcoin, there is only one potential outcome for Bitcoin’s future valuation. We have already witnessed this as Elon Musk’s Tesla was reported to have around $2 billion invested in Bitcoin at the end of 2021. This is just the beginning.
Demand for Bitcoin in the face of inflation
It’s no secret that fears of inflation are rife throughout the economy. In his Spring Statement to Parliament, Rishi Shunak said that in February 2022 inflation hit a 30-year high of 6.2%.
Is Bitcoin a good hedge against inflation?
Bitcoin’s total supply of tokens is capped at 21 million. There can never be more. The currency has therefore been compared to ‘digital gold’ as Bitcoin scarcity will only grow. What’s more, the founder, Satoshi Nakamoto – a pseudonym of the founder of Bitcoin and blockchain technology, holds over 1 million of these coins, which have never been touched since Bitcoin’s creation. This only further restricts the total supply of BTC to the market. This makes Bitcoin one of the most deflationary assets ever conceived. With inflation peaking in the UK and the US dollar’s print rate skyrocketing since the pandemic, institutions with a large amount of capital are beginning to see bitcoin as a good hedge against inflation.
Bitcoin seems the obvious choice of investment as a for anyone or any institution with a large amount of cash on them who doesn’t want to see that cash value diminish.
Blockchain technology use cases rising
Blockchain, as a technology, is radically reshaping the world of finance. You would be surprised how many large corporations and new fintech start-ups are already using blockchain technology. Data storage, supply authenticity, DeFi (Decentralised Finance) and Web 3 (the next evolution of the internet backed by blockchain technology) solutions are all provided by blockchain and cryptocurrencies. It is not a matter of if, it is a matter of when this all becomes mainstream. Don’t get left behind.
This article is not an attempt to get you to uproot your total net worth and channel it into cryptocurrencies. It is merely an attempt to help more people recognise the huge financial potential cryptocurrencies offer as a hedge against inflation. As Bitcoin scarcity increases, are we in for a supply shock soon? If you don’t expose yourself to them, you won’t reap the rewards.
