It is no secret that many South Africans have seen impressive returns on their cryptocurrency investments over the past few years, especially during major boom periods like 2017. But what about now? Is it still worth investing in Cryptocurrencies in the year 2020, and particularly, in this uncertain climate? Many analysts have predicted high institutional investor demands for bitcoin post-COVID-19. Here are some reasons to consider before investing in cryptocurrencies like Bitcoin.
Faith in Traditional Banks and Financial Incumbents Is Waning
The market research organisation, The Tokenist, recently published a report called “Comparing Public Bitcoin Adoption Rates in 2020 vs 2017.” The study’s findings give a comprehensive look at the cryptocurrency ecosystem between 2017 and now. The study indicates increased faith in bitcoin over traditional investments like gold, stocks, and real estate.
Bitcoins are Independent of any Central Authority
The increasing trust in Bitcoin may be attributed to the fact that Bitcoin is a completely digital currency. This means that no government nor central bank rules over them. Furthermore, the lack of centralised authority means significantly lower fees, as all apps needed for Bitcoin trading have been built around the Bitcoin ecosystem.
What are the tycoons doing?
With a global recession looming, the purchasing power of traditional currencies are bound to be impacted. In other words, the stock market may lose its attractiveness after the COVID-19 crisis as a result of the decreased demand for companies’ products, ultimately resulting in long-term decline in corporate profits. This severe turbulence in the stock market has led to an increase in movement towards investments in digital assets, as investors have realised that they can’t put all their eggs in the cash basket.
In terms of cryptocurrencies, Grayscale Investments’ Q1 2020 earnings report indicated a capital inflow of $503.7 million into cryptocurrency investments, with 88% of all investments made by institutional investors. This is a strong indicator that institutional investment in Bitcoin and cryptocurrencies alike is expected to continue through and after the Coronavirus crisis.
What about Bitcoin Halving – is it safe?
Bitcoin is often referred to as “digital gold,” and this is a fitting comparison because just like gold, Bitcoin is mined. Bitcoin mining is done virtually by a global network competing to verify bitcoin transactions. The miners receive Bitcoins as a reward for participating in this virtual mining. Approximately every 4 years, the Bitcoin mining reward is halved, as was done recently in May 2020. This will continue to be done until all 21 million Bitcoins have been mined (estimated to happen in the year 2140). Halving Bitcoins means that less supply is made available over time, which makes it more likely to increase in value.
Previous Bitcoin halvings have proved this theory. As the great strategist, Sun Tzu said, “In the midst of chaos, there is also opportunity.”
Previously, Bitcoin halving events were always followed by volatilities. That said, a positive trend in Bitcoin price that eventually led to a bull run was also correlated with the halving events. In 2012 when the first halving happened, it took about 12 months for Bitcoin to make a historical gain of nearly 8,000% that brought the price from $12 to around $1,000. The second time it happened in 2016, it took 17 months for Bitcoin to go from $650 to its peak, $20,000. The most straightforward interpretation of this is that the halving introduces a constraint on supply, driving demand.
So, should you invest in cryptocurrencies?
Cryptocurrency has been doing well on the global front, with more and more operational areas warming up to this new offspring of technology. The market performance of this Bitcoin is promising at the moment and there are many benefits to adding cryptocurrency to your portfolio. That being said, it is important to do your own research and understand the risks. While many famous people on the internet may tell you different stories, the smart investors always advise to never risk more money than you can afford to lose.
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