Bitcoin. Litecoin. Ethereum. Bitcoin cash. Far from being mere buzzwords, cryptocurrencies are quite likely set to be the future of finance.
Cryptocurrencies offer investors a significantly larger degree of freedom when compared to more mainstream financial instruments. This is due in part to their decentralized nature and the fact that the crypto market is largely unregulated.
Because of this, cryptocurrencies were initially extremely popular with deep web users and individuals operating on the fringes of society – thus giving the crypto market a rather unsavory reputation. Things have changed significantly in recent times, and cryptocurrencies have become a mainstream investment.
With massive economic uncertainty on the horizon and a global health crisis, economies around the world have taken a massive hit. In response, investors have been sent scrambling as they search for ways to hedge the value of their assets.
Cryptocurrencies like Bitcoin have proven to be exceedingly popular with investors. Besides being the most popular crypto in the world, Bitcoin has proven to be relatively resilient.
In the wake of a successful halving and rising Bitcoin prices, we now ask the question – can cryptocurrency be a long-term investment?
Let’s go through some of the points:
1. Economic uncertainty can push investors to cryptocurrencies
The coronavirus crisis has forced entire countries into a state of enforced lockdowns which has plunged the global economy into a freefall. In response to this, governments have begun printing cash at an unprecedented rate – all in an effort to inject liquidity into their failing economies.
With an excess amount of cash floating in the market and panic buying, inflation is set to increase drastically in 2020. Because of this, cash will suffer a drop in purchasing power – thus spurring investors to snap up assets to hedge against inflation.
From luxury watches to classic sports cars, alternative investments have become all the rage.
Due to its decentralized nature and limited supply, Bitcoins are in fact inflation-proof. Thus, making the cryptocurrency an excellent store of value.
By investing and holding on to Bitcoins, a punter can leverage on the appreciation in BTC valuations caused by an increase in demand.
2. Bitcoin as a liquid asset
With so much uncertainty on the horizon, investors would naturally prefer liquid assets that can be easily converted into cash. This allows them to quickly enter or exit a market depending on the current situation.
Digital assets such as Bitcoin are not only easily transferable, but they are also exceptionally liquid. With plenty of crypto exchanges available, an investor can easily convert his/her Bitcoin into fiat currency or vice versa.
This flexibility makes it easy to capitalize on any market opportunities that may arise. Thus, further making the case for Bitcoin as a long-term investment.
3. The rising cost of Bitcoin mining
Initially, Bitcoin mining could be done by just about anyone with an internet connection and a computer. Having achieved mainstream popularity, the landscape of Bitcoin mining has changed dramatically.
Nowadays, crypto mining operations are a massive affair conducted on an industrial scale. Entire warehouses filled with mining rigs have become the order of the day.
In order to be remotely profitable, one would need access to a limitless supply of cheap electricity and affordable real estate. As Bitcoin undergoes what is known as halving, mining on the long-term will become increasingly unprofitable – thus reducing the supply of Bitcoin on the market.
Assuming that Bitcoin remains as popular, all these factors would lead to an increase in Bitcoin valuations on the long-term. You want to know how many bitcoins are there in circulation in 2020? 18.52 Million, with 2.48 million left to mine according to Statista.
The future of cryptocurrencies such as Bitcoin is a bright one. As we move towards a new age, we can surely expect digital assets and currencies to play an ever-bigger role in our future.