Not too long ago, I was doing some research on Bitcoin. As the bear market takes a firm hold on all investors, I came across something that brought the crypto world into a much different perspective.
Bitcoin hit an ATH in December of 2017, reaching $19k for a short period. Eventually, the price corrected and then went into a total bear market, hitting a floor of nearly $3k.
The older article I came across was from just a year after the ATH, and the author was making a case to not “buy the dip”. Their reason? Bitcoin had breached critical support levels of $6k and then $4,500, and he didn’t want investors to lose a ton of money as no one knew the actual floor of Bitcoin.
Hindsight is 20-20. Anyone who invested during that bear market did well in the years following. Don’t sell your Bitcoin. Here’s why.
1. Bitcoin Isn’t Going Anywhere
Bitcoin is a volatile asset. But it isn’t going anywhere. It has outpaced every other asset class since its inception. In the last seven years, Bitcoin is up 100x at the time of this writing, even though it’s down more than 50% from the current ATH.
Your house hasn’t appreciated that much. Not even close.
Do you think the SPY has gone up 100x in seven years? Think again.
Don’t get me wrong, the SPY is a solid investment, and so is your home, for that matter. But to say Bitcoin is doomed because of its growth is absurd.
Can it go to zero? Sure. And so can any other asset, digital or not. There is always a chance that the worst-case scenario can happen. However, it’s time we move on from doomsday thinking and move on to other things like acquiring this asset and putting it to work for you.
2. It’s a Kingmaker - Buy, Borrow, Die
The richest people in the world have been using debt to increase their wealth for decades. The principle is known as the buy, borrow, die strategy. They go to a bank and take out a loan using their assets as collateral, paying next to nothing for interest, all while watching the value of their assets grow over time.
You can do this with Bitcoin, using protocols like AAVE. The difference is there is no loan officer, no paperwork, and no repayment plan. The interest rates are low and you can use these loans to fund your plays that bring in attractive rewards.
Let’s say you picked up Bitcoin at $4,500, as the author mentioned in the introduction advised people not to do. You had $9k laying around and decided to give cryptocurrency a try. Those two Bitcoins you bought would be worth over $60k at the time of this writing.
Taking out a loan at a 25% loan-to-value ratio at 4% interest will give you roughly $15k to invest however you please. Or you can pull money out to spend on a vacation, a new car, or anything else you’d like to buy. Another possibility would be to invest that $15k into a defi project that yields a 50% interest rate (or more, degen’s going to degen, amirite?), which you then use to pay off the loan at your convenience.
Retail investors finally have the power and the means to do precisely what wealthy people do. If you had panic sold that Bitcoin at $5,000, you would never be able to make this happen.
Holding Bitcoin long-term has the potential to turn you into a millionaire, providing financial stability for future generations.
3. It Can Protect You Against Inflation
I found this picture online. I’m not sure how accurate it is, but it doesn’t matter. I’m sure you get the point. I’ve seen a substantial impact on my grocery bill over the last year. Inflation is a real problem that affects us all, and until crypto, the only real hedge against it were assets like gold and silver.
Precious metals are still a solid investment, and many crypto investors have substantial holdings. But it’s getting to the point where it’s easier to buy Crypto than physical items. All you have to do is log on to the exchange of your choice, make a few clicks, and you’re done.
Ignore short-term price action because, for the most part, it’s irrelevant to long-term holders. If anything, you should take the opportunity to pick up Bitcoin on sale.
4. There’s a Finite Supply
People tend to forget that Bitcoin mining won’t last forever. There are only two million left to mine, with the last of it projected to be mined sometime in 2040.
The price will still fluctuate at that point, but the chances of the volatility we see these days are slim. Once the supply is completely capped, the floor rises and the ceiling disappears. We’ll see true economics as we’ve never seen before.
However, this is speculation by Bitcoin bulls. But once this crypto can no longer be created, it’s not unreasonable to think it can achieve new ATHs and stay there. Cathie Wood is the mastermind behind the investment group ARK. She predicts a $1 million price tag by 2030.
That prediction is probably a little ambitious, but when brilliant people who have been in the game this long start throwing out those kinds of numbers, it makes you think. Not about the dollar signs. The potential. If we see that kind of price in our lifetime, what will our grandchildren see?
5. Sellers Pay Taxes
Day traders, regardless of the financial markets they trade in, are subject to taxes. Day traders' profits are taxed as income because it’s a short-term capital gain.
Long-term capital gains, which come from any profits generated by the sale of an asset that has been held for longer than one year and one day, are taxed at 15% or 25% in the United States. If your total income is less than around $40k a year, you don’t have to pay long-term capital gains taxes.
But if you bought a single Bitcoin in 2011 and sell it now, you will be taxed hard. So hold it forever. Borrow against it if you want to. Watch your wealth grow.
Conclusion
If you want to build long-term wealth, Bitcoin should be in your portfolio. I’m not suggesting that you liquidate your 401(k) or pull out the money you have in Amazon. But it’s time to think outside the box.
Bitcoin is over ten years old at this point. It’s not going away. And it’s only going up in value. The best time to invest in Bitcoin was in 2011. The second best time is today.
