Jamie Murray
Extreme Frugalism — Is It Worth It One Infinity

The resurgent rise in Crypto and the case for buy and hold

According to Wikipedia, on the 17th of December, 2017 Bitcoin hit an all-time high of $19783.06. A rapid surge of speculative interest, excitement about the crypto movement, and an improvement in the reputation of Bitcoin itself led to a rapid rise in price. A year later, one Bitcoin was worth just over $3000. Was Bitcoin’s first break out too early, and if so is now the time for a more steady, long term accumulation in value?

“Never invest in something you don’t understand”

This is perhaps Warren Buffett’s most famous quote, and it served many investors well — myself included. During the surge in the price of Bitcoin in 2017, I was most definitely not on board. Firstly, I didn’t really understand it, or how it traded as a market. Secondly, I felt that I had missed the boat given how steep price had risen, and thirdly, I was also just busy being invested in other things — namely trying to get out of debt entirely and start pointing our laboring financial ship towards better waters.

I was however hooked from the sidelines. The concept and the community fascinated me. I had a feeling the movement had a long way to go until it gained traditional acceptance but knew it was going to be an interesting ride.

As Bitcoin came off its 2017 highs and took a pretty steep nosedive it gave all the crypto skeptics the chance to sing out the “I told you so’s”. Recently, however, Bitcoin has been back in the news, staging a progressive comeback towards $13000.

The more recent rise of the gatekeeper of crypto has been an interesting one. A flurry of alternative coins and questionable ICO’s had many trying to sweep the whole movement towards the history books, the reverse, however, seems to be the case.

With the more questionable elements of Bitcoin’s history squarely in the rearview mirror, recent gains, and more importantly recent interest from institutional parties seems to have been much more steady, which feels like a much more solid foundation for longer-term price discovery.

What’s also interesting is that there seems to have been a rise in the narrative of Bitcoin and crypto in general as an alternative safe haven to Gold and the US dollar. Now, risk metrics and global money flows are not something I would ever claim to be an expert in, but the general concept makes sense.

In times of tension or turmoil, risk capital tends to flow out of equities and higher risk assets into traditional safe havens such as gold, bonds, and reserve currencies, particularly the US Dollar. More recently, the talk of potential headwinds facing future US growth seems to be strong, and everyone is listening but the stock market. With the S&P seemingly set on the stars, and with concerns for a crash rising, Bitcoin has been quietly rallying. Quietly until now that is.

Photo by Austin Distel on Unsplash

What’s more, the recent uncertainty surrounding the US and China trade talks has been coincidental with the rise, suggesting that Bitcoin is starting to take its place as a serious contender for traditional safe havens in times of uncertainty.

It doesn’t stop there — I’ve read reports on the idea that the recent rise in the price of BTC is potentially influenced by China itself, with China buying into Bitcoin as a way to hedge itself against the potential for the trade talks to not go their way.

Either way, what we’ve seen is the ability for Bitcoin to rally in a fairly controlled manner during times where the global economic outlook doesn’t look as solid as it did back during the highs of 2017.

As I say, I’m no expert, and I think anyone who is unfamiliar with Bitcoin as an investment vehicle needs to make sure they understand it before considering adding it to their portfolio, but I definitely think the past twelve months have seen some interesting developments that suggest Bitcoin and crypto could deserve a strong place in an investment portfolio.

No matter which way you cut it, institutional money is taking notice. It’s hard to say given mixed reports if major institutions are actively seeking to increase exposure to crypto assets, but I think it is clear that the interest is certainly there. Not only are there now a number of legitimate crypto funds coming to market, but there has also been a rise in the willingness of major players being happy to discuss Bitcoin as a serious asset, rather than just dismissing it off hand.

Actively trading Bitcoin is something that I would definitely leave to professionals, but I’m starting to think that Bitcoin has a bright future, and therefore consider it seriously as a long term buy and hold the asset. There is natural volatility in something like Bitcoin, but given the recent interest in institutional money, it’s legitimization by way of introduction of CME futures, and the eradication of its reputation as a hive for ill-informed risk-taking speculators, I think we could see a much more linear and long term bull market in the crypto space.

As I say, I’m very new to the crypto game, and I think the legitimacy of blockchain as a technology and the value of Bitcoin as an asset are two strictly different things. The first I think is quite clear and now without a doubt. The second, I have a feeling it will surprise many.

It is important to point out that the long term increase in the value of Bitcoin poses a significant set of problems for the current financial system, aside from the decentralization that will naturally leave central banks and governments uneasy, it poses a threat to the way the financial world does business. I think these wider political issues will be a big factor in how far we see a nonspeculative rise in the price of Bitcoin over the next ten years, but should solutions be found to these issues I think the future is bright for both Bitcoin and crypto.

“Never invest in something you don’t understand” — Maybe it’s time I understood.

P.S This is not investment advice, I’m not an investment professional, so I think I have to make that clear!

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