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The Bitcoin & Cryptocurrency Investment Case for Digital Assets

When the Bitcoin white paper was released in 2008, it referred to itself as an electronic peer-to-peer cash system. It also compared the process of mining Bitcoin (which confirms transactions in the network) to be analogous to mining gold. What it did not do is make any reference to being a currency. The term ‘cryptocurrency’ came later and joined one of the core technological principles of Bitcoin, cryptography, with the idea that digital assets can function as a form of currency.

This has led to an enormous amount of confusion and debate among investors. It has undeniably caused many to question the legitimacy of digital assets because they question their authenticity as currency.

A peer-to-peer cash system does imply currency-like properties but Bitcoin is something different. And that’s a good thing. Let’s dive into and explore why Bitcoin and other cryptocurrencies might just be worth some of your hard earned money.

The currency and payments debate misses the mark.

While digital assets may have the ability to function as payment currencies as we see with projects like Litecoin, Dash, Stellar, Ripple and the ‘Lightning Network,’ which serves as a layer 2 payment protocol to enable fast transactions on top of other blockchains, this misses the mark on why cryptocurrencies are so damn interesting.

Those that are involved in the payments space could likely give you exciting breakdowns on how transaction speeds on blockchains are improving and use as a currency is on the horizon.

The truth is though, it doesn’t matter. Whether that happens or not is irrelevant when it comes to investing in blockchain and cryptocurrencies today. The currency debate steers investors in the wrong direction.

Crypto skeptic Peter here would like you to think otherwise…

These are the kinds of posts that scare people out of an otherwise good thing. Unfortunately, there are many more like Peter that have misunderstood the practicality of crypto and can’t see beyond its comparison to money.

Bitcoin doesn’t have to ever be used for payments to be a valuable asset.

You can think of this much like a 10oz gold or silver bar. You wouldn’t trade this bar for goods or services unless you absolutely had to. Instead, you would hold the asset because you know that over time it is a reliable store of value. Should the world enter a depression or your fiat money be devalued, you can be confident gold or silver will still have value while your paper money may not. There are very few assets like this in the world. Gold and silver have been the most dependable for thousands of years.

This is what Bitcoin is becoming. It is the on-ramp asset to the digital monetary network known as cryptocurrencies.

Whether some new technology comes around to make Bitcoin transactable in seconds and used everywhere remains to be seen. However, this doesn’t need to happen for Bitcoin and cryptocurrencies to remain an enormous success.

Bitcoin will maintain market dominance as a store of value.

Bitcoin probably won’t always have the highest market capitalization within the cryptocurrency space. This is because cryptocurrencies and blockchain technology as a whole might be bigger than just storing value. Ethereum and other platforms are showing practical use cases that could become quite large in terms of users and network capacity. If these platforms continue to grow at the pace they have been, they will inevitably surpass Bitcoin and be a better place to put your money for investors.

However, Bitcoin will always maintain its market dominance as a store of value and trusted reserve asset. This is because of its on-ramp nature and the way it was designed.

Bitcoin is supply capped at 21 million. There will never be more Bitcoins. It is a hard asset and is the most decentralized. The SEC has even stated that Bitcoin will not be considered a security which is important from a regulatory perspective.

Furthermore, as people embrace and discover the world of digital assets they will embrace Bitcoin first. This is even proving to be true as institutions adopt digital assets. They generally prime their audience by integrating Bitcoin before further integration of digital assets comes to the platform.

With the term on-ramp does imply there might be an off-ramp. There is. As users inevitably try Bitcoin, they eventually explore other cryptocurrencies and learn about digital assets altogether. This leads to some of Bitcoin’s market cap finding its way through the rest of the network. This process is gradual though and because the ecosystem is so vast, Bitcoin isn’t threatened.

In many ways, Bitcoin was created to be the store of value for the crypto ecosystem:

  • It was the first to solve the double spend problem with decentralized transactions.
  • It was released under a pseudonym with no known creator(s).
  • Its code is entirely open-source – it can and has been forked/copied.
  • There is a fixed supply to the number of Bitcoins that will ever be created.
  • There is a halving event where rewards to miners are halved every 4 years.
  • No single entity has control, it operates as a decentralized system running via a worldwide distributed network of computers.

As you might imagine, this was groundbreaking work in the areas of computer science and transactions. Many of those involved in the field prior to Bitcoin regarded its decentralized and peer-to-peer concept as revolutionary.

Bitcoin will continue to be adopted with network effect.

As Bitcoin continues its approximate 200% per year return, more and more people, investors and companies will start to pile in. Adoption rates even in bear markets have shown no signs of slowing. There is a wave of adoption awaiting the space and it’s starting to heat up.

This can also be referred to as network effect. As the adoption expands, it begins to grow exponentially just as the internet did when it disrupted the world.

There are numerous mathematical laws that relate to networks. One of the most popular ones is Metcalfe’s Law which states you can square the number of addresses in the network to predict its value. How has it done? Bitcoin has been almost perfectly in sync since its inception.

This is a big reason why traditional investors have failed to understand Bitcoin. It is viewed through a lens of, “where’s the fundamental value?” and “how can an asset that doesn’t produce cash flow be worth anything?” The answer is supply and demand and the network effect. The sentiment is more commonly becoming that cryptocurrencies are valuable and worth owning. Since the supply of Bitcoin is capped, the increased demand raises the price.

We are already beginning to see corporate adoption with companies like MicroStrategy, Square and Tesla putting a percentage of their shareholder balance sheet in Bitcoin. Tesla recently announced they will be accepting Bitcoin as payment for their cars and they won’t be converting it to cash afterward. What this tells you is that you shouldn’t buy your Tesla in Bitcoin. You should hold onto it because even Elon Musk believes it’s going higher.

At what point does the average person start to trust that the network has grown large and stable enough that they should participate? My argument is that this point is now.

Bitcoin is a digital store of value with practical uses.

Being able to send money anywhere in the world without relying on a third party or bank is a tremendous value. However, unless your currency is being devalued by your government or you frequently send money between banks or overseas, you probably won’t relate to this as strongly.

If you have a digital wallet with BTC or another cryptocurrency in it, try sending it to another wallet and watch as the efficiency and ease of use surprises you. It takes minutes to complete a transfer which can take days at a bank. Better yet, no one had to approve it and no central computer had to process it. The Bitcoin network or blockchain made it happen.

The DeFi Emergence

Bitcoin has shown that its decentralized nature has merit and is a valuable tool in finance. We can already begin to see this playing out as DeFi or decentralized finance is becoming the next frontier of crypto.

DeFi is the field of finance where decentralization and blockchains are being used to provide utility to users.

There are already numerous places where users can deposit their assets and earn high interest rate yields or use their assets as collateral for low interest rate loans. This allows crypto holders to essentially act as their own bank having all the tools and resources at their disposal to go bankless. Since there are no greedy CEOs or corporations behind decentralization, the users extract all the value making it a far better proposition than putting money in a bank.

Going Bankless

There are also companies technically still CeFi or centralized finance but they act as a bridge between DeFi and traditional banking. One such company is Celsius.Network, one of the best wallets for earning yield.

These companies are embracing Bitcoin and other cryptocurrencies and beginning to offer Bitcoin rewards credit cards, loans and other services.

If the lack of cash flow or fundamental value of Bitcoin is still tripping you up – remember, just like people believe in fiat money which has no tangible or fundamental value, people can believe in Bitcoin. This is a network that is expanding and opening the door to widescale decentralization, something the world could greatly benefit from.

Decentralization

Decentralization allows for distributed businesses controlled by the community and user-base with no central authority. It is easy to envision how this could be useful when we think of Facebook, Twitter, Amazon, Google and other tech giants. Many believe they have exploited their power and this has led to greater wealth inequality. In a more decentralized business landscape, this would be far less prevalent and the standard for new businesses would be raised significantly.

Bitcoin is not under threat from other cryptocurrencies.

As of today, there is about 83x more money in Bitcoin than its next closet competitor, Litecoin. In other words, it is in no way in jeopardy of being overtaken by a competing coin.

Litecoin was created to shorten the transaction speed of Bitcoin. Whereas Bitcoin takes about 10 minutes to confirm a transaction on the network, Litecoin takes only about 2.5 minutes.

LTC was an early fork/copy of Bitcoin’s code with slight improvements. If any crypto had a chance of competing, this was it.

You might think that everyone would run to Litecoin but as the data has already shown, this didn’t happen. Why is that? Because transaction speed wasn’t the value proposition of Bitcoin. Had it been invented to process payment for your morning coffee, it probably would have been designed differently.

Bitcoin is much better viewed as a store of value. It is the original asset that opened the door to this decentralized digital monetary network.

Litecoin is now seen as analogous to silver as Bitcoin is analogous to gold. Litecoin’s purpose has evolved into being Bitcoin’s younger brother, used when confirmation of transactions is needed within a few minutes.

The exact numbers change frequently but let’s take a look at the top coins by market cap:

NameMarket CapThreat to Bitcoin?
Bitcoin$1TThe original store of value asset.
Ethereum$200BBlockchain platform, not a direct competitor.
Tether$40BStablecoin synced to USD, not a direct competitor.
Binance Coin$39BMultiple uses within the Binance ecosystem, not a direct competitor.
Cardano$39BBlockchain platform, not a direct competitor.
Polkadot$30BBlockchain platform, not a direct competitor.
XRP$25BPayment currency used for XRP, not a direct competitor.
Uniswap$15BEthereum token – decentralized trading protocol for DeFi, not a direct competitor.
THETA$12BBlockchain for video streaming and bandwidth consumption, not a direct competitor.
Litecoin$12BBitcoin fork, finally, sort of a competitor but no where near Bitcoin in adoption…

As you can see, it takes awhile before you get to a single coin that has any relevance in comparison with Bitcoin. All other coins that have managed to capture market share are not true competitors. While they may be cryptocurrencies, they weren’t developed to copy Bitcoin or provide a similar use-case as a store of value. They have specific features and functionality of their own.

Even Litecoin was originally intended to be used for payments and is not a true competitor to Bitcoin. The next closest would be Bitcoin Cash, currently #13 in market cap at $9B.

Once you understand the industry, you see that Bitcoin has no real competitors. It was the first and therefore the most mature digital store of value. Other cryptocurrencies have vastly different use-cases and because of this, the space as a whole is often misunderstood.

Competing with Bitcoin has been put to bed for most but opponents seem to continue to use it as a distractor. Let’s take a look at another area of confusion, Ethereum.

Ethereum is a powerful technology but a different animal.

Many see ETH’s 2nd place in market cap and conclude that Bitcoin’s position as the market leader will eventually be put to test by Ethereum.

Much of this hysteria comes from investors that doubt cryptocurrencies as a whole. Once again, they often see them for what their name implies, currencies. Because they doubt crypto’s prevalence on the world stage or its ability to replace the dollar, this leads them to either dismiss the technology entirely or claim that any high market cap coin like ETH could beat Bitcoin.

This is often said to make the claim that Bitcoin is not sustainable and that any runner-up coin like ETH could threaten it. In truth, this misinformed view approaches the problem from the wrong angle. As a result, they become blinded to the broad range of what cryptocurrencies can offer.

When you dig deeper, you discover that ETH is not competing with Bitcoin at all. Ethereum is a blockchain platform. It enables software developers to create applications that utilize the same blockchain technology that Bitcoin pioneered. These projects can also have their own cryptocurrency token that runs on the Ethereum blockchain.

These Ethereum-based tokens do not diminish Bitcoin’s prevalence, nor does ETH itself. Rather, they have helped to strengthen the network with further assets that make the digital space that much more compelling. ETH has become a reinforcing factor to Bitcoin and not the detractor many speculated it would be.

Companies can use their own cryptocurrency tokens to structure incentives and reward users. It builds the token into the framework of the business which results in far better user representation. There are amazing companies and software coming from this.

Structuring a business this way also allows the community to support and invest in the company from the beginning, essentially sharing in the prosperity with its founders.

If you believe in blockchain and decentralization across the financial sector and more, maybe ETH is a better buy to you than BTC. After all, ETH’s price doesn’t need to increase nearly as much as BTC to provide a stronger return. However, that doesn’t put them in competition and both are genuinely exciting assets.

Bitcoin has never been hacked.

When people say that Bitcoin has been hacked they have misspoke. Bitcoin’s blockchain has never been hacked. The network itself has never been compromised. One thing that could compromise the network would be a quantum or otherwise supercomputer that has yet to be invented. We won’t go into that as an operational risk as it’s theoretical.

Digital wallets where Bitcoin and other cryptocurrencies are stored have been hacked.

For as long as humans are prone to error, there will be lost and stolen money on the Bitcoin network. This is not any fault of the network itself but of human beings. We will forget passwords, store them in unsafe places or we will trust the wrong digital wallets with our crypto. Without intermediaries to protect us, it does mean we have to behave more responsibly.

There will be some loss along the way just as there has been with everything else. But this doesn’t bring the technology of Bitcoin or any other cryptocurrency into question.

There is a tokenized transition coming.

Governments are beginning to realize that blockchain and cryptocurrencies are necessary. In the future, we will likely see a tokenized U.S. dollar. This is because software developers need a way to programmatically interact with money and they can’t do this with the traditional system.

The tokenization of assets is inevitable because blockchain creates an immutable and permanent record of ownership. Transactions are fully auditable and provide a means for computer programmers to scale their applications more efficiently.

Many believe that assets such as the title to your car or house will be tokenized, as it provides much better record and proof of ownership. Bringing the digitized version to the blockchain allows the asset to be exchanged and used.

This will become increasingly important as artificial intelligence plays out in computer science. These AI systems will need a trusted monetary network to interact with each other and exchange services.

Don’t let the FUD scare you out of the market.

My point with this breakdown is to not let others scare you out of the market. Bitcoin and specifically blockchain technology is complicated stuff. People don’t understand it yet and it has been 13 years since Bitcoin was released.

There is a lot of FUD – fear, uncertainty and doubt. If you hear the currency or payment debate, just realize that payments is not something that cryptocurrencies rely on. There are specific coins designed for this purpose and Bitcoin isn’t one of them. Many in the gold and traditional store of value communities have used this as an attack against crypto but at close examination, it hasn’t held up.

The best thing you can do is educate yourself and not take any one person’s opinion as fact. If someone says Bitcoin is a Ponzi scheme, a fraud or there’s no cryptocurrency they would ever consider investing in, you may want to start looking for alternative sources of information. It usually takes a few months to get up-to-speed on cryptocurrencies.

Of course, this is not financial advice.

I’m not advocating that you should rush out and buy Bitcoin or any other cryptocurrency, token, NFT or asset. It’s really important to do your own research.

While I am a long-term bull and have my own crypto portfolio, crypto markets are still young and therefore very volatile. It’s not unusual to have 20% increases or decreases in value in a given day.

Bitcoin’s 4 year halving cycle also makes the case for 2 year bull cycles followed by 2 year bear cycles:

If history is any indicator, this will continue to happen. If you buy at the wrong time such as the peak of a bull run, waiting out 2 years of declining prices could start to feel like a major strain on your portfolio.

Here’s the halving cycle so you can see when these events are coming:

BTC LaunchJanuary, 2009
Halving 1November, 2012
Halving 2July, 2016
Halving 3May, 2020
Halving 42024
Halving 52028
Halving 62032
Halving 72036

I mostly subscribe to the dollar-cost-average and HODL mentality. DCA means buying into an asset periodically rather than all at once. When investing significant amounts of money at once you are placing a great deal of confidence in your ability to time the market – something I personally choose not to do with my investments. I do occasionally dabble in some speculative trades where I sell in-and-out but it’s not often. When I do, I allocate a small amount of funds for trading.

HODL is just crypto slang for hold, which means if you bought an asset that you believe in, why sell? It’s better to hold your investments if nothing has changed about your underlying reason for buying even if that asset has since decreased in value.

Not all investments go up right away – especially in crypto. It can take years to reap the rewards of a good investment decision. If the thesis hasn’t changed – it’s best not to touch it unless you need the capital for a better opportunity.

A quick note on where to buy.

Most people are hesitant to buy cryptocurrencies at first. For that reason, I recommend you start with the easiest source you have available. There are already popular apps that have Bitcoin and other cryptocurrencies integrated. Cash App, Robinhood and PayPal to name a few. Maybe start there. It’s easy to buy a small amount of crypto and you don’t have to commit to the entire price of a coin as cryptocurrencies can be purchased fractionally.

Keep in mind, these are not great apps for long-term crypto holdings and they do not give you access to the ever-expanding crypto market.

For that reason, if you’re going to be doing any serious purchases, I would use one of the below trusted parties.

Wallets:

Celsius.Network
Great asset selection, no fees to buy only – this is just a wallet so you can’t sell from here, provides safe interest on many assets with no lock-up period required, low interest collateralized loans available, self insurance and crypto rewards credit card coming soon, a highly respected community.

Exchanges:

Voyager
Great asset selection, no trading fees, amazing app, automated recurring and commission free buys, provides safe interest with no lock-up period required.

Gemini.com
Decent asset selection, does have trading fees, automated recurring buys, provides safe interest with no lock-up but requires a ‘redeem’ process.

Coinbase.com
Decent asset selection, does have trading fees, automated recurring buys, no interest.

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