On November 25, 2018, Bitcoin fell below $4,000, down nearly 40% from two weeks prior, and down 80+% from peak-mania of $20,078 on December 17, 2017.
Crytocurrency is turning out to be one of the biggest bubbles in all of history! Check out how much Bitcoin's market cap has collapsed since the end of 2017.
The question smart investors should be thinking now is whether Bitcoin and other cryptocurrencies are a buy at these levels. HODLrs have been pounded into submission and we are finally seeing some capitulation.
As someone who only uses investment returns to buy risky assets e.g. income from dividend stocks or bonds to gamble in speculative investments, let's look at the positives for buying Bitcoin and other cryptocurrencies today.
Reasons To Buy Bitcoin And Cryptos Now
1. “Cheaper” Valuations
There is no way to properly value Bitcoin since it doesn't generate free cash flow. Valuing crypto is like valuing Gold, hard to do. Therefore, we've got to look at relative value e.g. what Bitcoin is trading at today versus in the past. Take a look at the Mayer Ratio below. As you can see from the chart, Bitcoin is below its median value in red.
2. Bitcoin May Be A Reliable Alternative
Unlike banks, which can be taken under, raided, or robbed, Bitcoin is relatively stable since 2013. Let's forget about the Mt. Goxx fiasco! The problem with using Bitcoin to purchase anything is the transaction cost. Who the heck is going to pay $20 in transaction fees any time they want to buy some groceries? Thankfully, transaction costs have come down due to improvements in technology, including the Lightning Network advancement, Bitcoin Cash, and the Segregated Witness program.
3. Crypto Slowly Becoming Mainstream
As older generations die off, and younger generations adopt crypto or at least have heard of Bitcoin and crypto, it becomes more mainstream. The people in power, the Bank CEOs are older old folks who have a vested interested in protecting their old institutions.
Bitcoin remains the clearly largest cryptocurrency with a current market share of approximately 43 %. Generally, it's a winner take all mentality in new frontiers.
4. Institutional Demand Is Growing
Goldman, JP Morgan and other huge institutions have started cryptocurrency funds and trading desks. There are entire startups founded on the blockchain technology. Coinbase raised a massive round of funding, and will therefore do more to bring crypto to the masses. There are also ETFs being created to take advantage of the crypto trend.
The more liquidity that can be tapped to invest in crypto, the more demand there will be for crypto.
5. A Potential Safe Haven In Times Of Global Instability
If North Korea decides to shoot a nuclear missile at South Korea, all hell will break loose if China comes to North Korea's defense (they are allies). The US will get involved, wipe out North Korea, and then we've got a version of World War III.
The stock market will melt down and there will be bank runs. But if you own cryptos, you will be relatively safe because of the decentralized way Bitcoin and other cryptocurrencies are held and valued.
6. The Desire For Privacy Will Continue
There is a huge black market where people buy and sell things they don't want other people knowing about. This is where cryptocurrencies come in because it is an anonymous payments system.
Just like how there is a revolt against Facebook and Google following our every move to sell ads, the same can be said for financial transactions. We want privacy.
7. A Stable Money Supply
Unlike the US Dollar, which can depreciate with massive printing of new dollars, only about approximately 7200 bitcoins are being created each day. Just look at the hyper inflation that is going on in Venezuela due to massive printing of money.
The more money out there, the less the currency is worth. Therefore, with the cost of mining bitcoin, bitcoin is better able to hold its value.
8. Bitcoin Has Come Back From The Dead Before
Bitcoin has gotten crushed before, and has proceeded to recover and then some. Check out this historical crash chart.
Cryptocurrency Is For Gamblers
If you love to gamble, then cryptocurrency and bitcoin is for you. Feel free to gamble with 5% – 10% of your liquid assets. If it hits big, then great! If your crypto investments go to zero, then the most you lose is 5% – 10% of your investable assets.
It's very hard to get rich quickly owning an S&P 500 index fund, even though patient capital is the way to go for most investors.
I've had huge wins before owning speculative investments. Once I locked in the returns, I turned the funny money into real assets like real estate, my favorite asset class to build wealth. Remember, the value of an investment is only worth the cash flow it generates. The key is to control your exposure and not get carried away.
Finally, if you're buying Bitcoin under $4,000, just be thankful you weren't a sucker who bought when it was $20,000, let alone above $10,000! Remember, invest at your own risk. Cryptocurrencies are a highly, highly speculative investment. Only gamble with what you can afford to lose.
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