Thesis 1 – Time to invest in Bitcoin is ideal
Bitcoin’s price development has been subject to frequent changes since 2010. After the all-time high, prices dropped significantly before reaching an all-time high soon after, followed by a price drop of about 90 percent. This is no surprise to experts because Bitcoin is an exponential technology that still has tremendous asymmetric information on the market. There are many indications that this is reflected in price developments. This means that at this point Bitcoin requires a much longer-term investment horizon than many small investors are typically used to, and at the same time has a mentally incapable of coping volatility in both positive and negative price development.
Trying to make a quick profit in the Bitcoin market with an investment horizon of less than three years is a game of chance and it continues to be. Large investors or institutional investors with a forward-looking investment perspective are much more experienced in dealing with highly volatile assets. In line with expectations, many high investors commented positively on the latest signals and started to determine the route to enter this new, very liquid asset class last year. In particular, new payment technologies like “Lightning” and the continuous improvement of storage solutions for crypto assets provide a very lucrative view to invest in Bitcoin – time is ideal for investing.
Thesis 2 – Bitcoin will make a breakthrough in everyday life in the foreseeable future
Although the recent price decline did not show this, the Bitcoin network improved noticeably in 2018, especially in terms of scaling and speed. The so-called Lightning Network, which is based on the Bitcoin blockchain and allows instant transactions through almost free payment channels, is currently in operation and is already used by crypto experts for real payments.
It is now a matter of using this technology first to develop applications that are easy to use, suitable for everyday use, and have the potential to show themselves in the community. Early adopters will most likely be online retailers in particular, and then offer the Lightning payment system as an on-demand payment method to open up new low-cost markets where credit cards or PayPal are not available or widely used, for example.
In the Western world, Lightning will primarily appeal to people who value privacy and do not want to entrust all their purchasing and transaction data to credit card companies. Unlike credit card payments, Lightning payments are not processed in a central point. Accordingly, there is no large data pool that can be accessed by hackers or evaluated by the payment providers themselves. Due to the openness and interoperability of the Lightning network, anyone will be able to decide whether to run a so-called “Lightning node” on their own, or to entrust the processing of their transactions to a person or a company.
To put it in layman terms, Lightning works like a network of hundreds of thousands of small VISA, MasterCard and American Express companies, each with perhaps just a few hundred or a thousand customers. The operating costs and associated time expenditure of a lighting node will be very low due to automation. However, the biggest difference from current credit card systems is that the transactions between the sender and the recipient are primarily provider independent and secondly, they are smooth at speeds less than a second. At the same time, since the data is stored in a decentralized manner, only the sender and recipient can access information about the payment – a huge gain in privacy.
Thesis # 3 – Bitcoin will likely be a means of payment for generations to come
Let’s be honest – Bitcoin is not (yet) suitable as a payment instrument for the masses. However, we are most likely not far from this: Blockchain experts like to compare the current situation with changes in our society before and after the invention of the internet. Who could have imagined the consequences of this then?
Able to? In everyday life, paying with Bitcoin still means a lot of time and a lot of inconvenience. Other digital payment options such as PayPal are now much more user-friendly and already accepted by most providers. But here too, users have to overcome many bureaucratic hurdles and meet certain requirements, at least when registering.
Especially younger generations dealing with cryptocurrencies and blockchain technology out of pure curiosity are developing an increasingly different relationship with accounts, banks and above all privacy. When the first “Bitcoin teens” are old enough to apply for their own bank accounts and face the bureaucratic process of opening an account, most people will i will wonder if they can use it until then. much easier.
At the same time, the “bank money” and “bank accounts” system has reached the end of its optimization possibilities after about 400 years. By contrast, cryptocurrencies like Bitcoin are still at the very beginning of their existence – no one can say what is still possible here today.
Thesis 4 – Bitcoin could eventually replace gold as the # 1 store of value
Asset managers still have about five years to develop solutions that allow end customers to buy and sell crypto assets.
Because from 2024, Bitcoin will represent the “hardest” money created by humans as a result of the regular halving of the “digging volume” every 4 years, thus replacing gold as the # 1 store of value. This “economic hardness” of money is determined by the fact that, despite increasing demand, it is a limited amount or how much additional money will be added in the near future. Unlike fiat money, bitcoins cannot simply be reprinted. Just under 21 million bitcoins will be a maximum number. The fact that money is really limited is unique in history. Because even with gold, global annual production has always been between 1.5 and 2 percent.
This is not bad, because no matter how hard the gold mine operators try, they will technically not be able to increase the amount of newly mined gold above 2 percent if demand for gold increases dramatically. This has been the case for at least the last 5,000 years. But two percent inflation for a store of value is also not perfect because zero percent would be optimal. However, if you compare gold with all other cash commodities that humans can produce, gold has so far been the most inflation-resistant product of human labor and time and therefore prevailed as the best store of value in a millennium of competition. The impractical thing about gold is that it is divisible, uniquely controllable, and heavy enough to be used as a means of payment in everyday life. But gold served us as a store of value.
Bitcoin, on the other hand, has none of these problems and its simple algorithm is designed so that inflation will catch up to that of gold from 2020 and even fall below gold inflation from 2024 and continue to fall until inflation finally reaches zero percent. Many people mistakenly call this feature “deflation.” However, “lowering inflation” is correct, which sounds similar but is something entirely different. Combined with Bitcoin’s “excellent divisibility”, this allows for the first time in human history to allow a limited but liquid store of value and a monetary system based on it and without inflation.
Author Jörg Hermsdorf is a blockchain specialist at consulting firm Conserve in Cologne.