Investment Thesis
In the face of climbing from one all-time high to another all-time high within a brief period, Bitcoin (BTC-USD) demonstrates that its pullbacks are short-lived and have proven to be excellent entry points. Furthermore, large investors like MicroStrategy (MSTR), MassMutual, and hedge funds are aggressively advancing into the crypto sector, making it more challenging for private investors to find that elusive perfect entry point. In the long run, these dips are proving to be holiday gifts, as I demonstrate below why cryptocurrencies cannot be killed.
The Monetary System is Inflated
Bitcoin is decentralized and independent of lobby interests, human weaknesses, greed, and corruption. It’s not subject to any central bank or professional politician. Bitcoin cannot be tampered with and is easily portable. In contrast to our current monetary system, it is deflationary. Bitcoin is also limited and the only good that we can quantify with a number. In contrast, we don’t know how much gold, silver, or copper is still in the earth’s crust or how much oil can even be extracted, but we know that Bitcoin’s algorithm is limited and ends at almost 21 million units.
All of these charming and unique attributes will soon be recognized by the crowd, including my neighbor, and then it gets wild. The central banks are playing the same game worldwide, and we actually see a Weimar-Esque set up everywhere. They will desperately try to drive inflation to reduce the debt burden at the expense of us, the citizens of the world. Here people will look for safe-havens. The new breed of crypto investors has long been recommending investing in real assets limited by nature and mathematics as a kind of life insurance against the endless printing of money by the central banks and a seemingly endless state of constant crisis mode.
When Big Money Comes, There Will Be No Stopping It
Even if the recent price increase already seems parabolic, the rally is likely to continue in the near future. Because while the price is already significantly higher than the high of 2017, the interest – measured by the search queries for the term “Bitcoin” on Google – is not nearly as high as it was then. But that could change quickly now, because thanks to massive price gains and new highs, public interest should also peak in unison.
A new Bitcoin hype would increase the buying pressure on private Bitcoin investors. So far, the rally has been mainly driven by institutional investors who slowly became aware of the cryptocurrency and who have built up their first positions.
This group was largely left out in 2017.
All kinds of bullish forecasts accompany the entry of corporations and the super-rich. Ambitious and sometimes adventurous course goals are practically part of Bitcoin. In the meantime, however, traditional investment banks and analysis houses are also providing estimates for the cryptocurrency.
The most recent example is Guggenheim Partners, whose Chief Investment Officer Scott Minerd has set a long-term price target of $400,000. Such statements get stuck and ensure confidence – for small and large investors.
Microsoft Expands Blockchain
Management consultants Ernst & Young and Microsoft (MSFT) have expanded the software giant’s blockchain service to manage gaming rights and royalties.
In essence, it is now possible for Microsoft to offer a financial system from contract production to billing and reconciliation. The expanded blockchain functions are intended for Microsoft’s Xbox video game partners means decisive advantages.
The network of content suppliers also benefits from this. That is, in addition to game authors and programmers, this also includes musicians, artists, and writers. Thanks to the blockchain, Microsoft could give these parties more insight into the tracking, administration, and payment processing of license agreements.
On the whole, the processing time is also reduced by as much as 99 percent, while the calculation of license fees can be done 100 percent in real-time. The acceleration lies in the use of electronic contracts between the partners of the game promotion.
The potential of Microsoft’s application is said to be around two million daily purchases.
Paul Brody, Ernst & Young’s Global Blockchain Leader, summarizes the project’s perspectives as follows:
“Blockchains could become the glue that digitizes interactions between companies. Blockchain solutions like this help raise the bar for business integration – from point-to-point integration to automation at the ecosystem level.”
But of course, the competition from Microsoft is not sleeping.
There are now plenty of other cases in which the blockchain finds its way into the gaming business. The legendary console manufacturer Atari (OTCPK:PONGF) recently announced that it would be offering non-fungible tokens (NFT) for its classic soccer Kick-Off. Also, the new model of the Atari VCS will be equipped with blockchain support as standard.
The Ethereum Ecosystem Is Evolving
The news about the introduction of the ETH futures on the CME exchange was, of course, not the most significant event for Ethereum this year. The first phase, phase 0, of ETH 2.0, officially started at the beginning of December.
ETH 2.0 aims to transform Ethereum from a proof-of-work to a proof-of-stake blockchain. In addition to the change in the consensus mechanism, there will also be other upgrades. The focus is, among other things, on sharding (a horrible moniker IMHO), whereby a blockchain is practically “broken down” and can thus process transactions in parallel — the possibilities of scaling increase immensely and could clear up some problems.
In the course of the Defi hype this summer, the Ethereum blockchain often reached its limits. Transactions took forever, and the transaction fees were so high that you had to pay two- or even three-digit US dollar amounts for the Ethereum transaction to be processed by the miners in an acceptable time frame.
No one can say with absolute certainty whether another ETH bull runs next year, as was the case in 2017. But the signs are not ominous, given the world’s growing interest in cryptocurrencies in general. It was recently announced that a hedge fund had invested 600 million US dollars in cryptocurrencies including Bitcoin and Ethereum. It is not unlikely that more large investors will buy Ethereum in the future.
The prerequisite for a considerable price increase at ETH is that the ETH 2.0 implementation phases run smoothly. If this is guaranteed, nothing stands in the way of a sharp rise in prices.
Ethereum One Step Further
Ethereum will work together with WordPress in the future. At least users of the CMS provider can now install an Ethereum plug-in on their site, with which users can place automated advertising and the income automatically flows into the advertiser’s wallet.
However, instead of an algorithm, smart contract technology based on the Ethereum blockchain is used here to assign the advertising space to the highest bidder advertiser automatically. The income generated by the bidding process is then transferred to the website operator’s Ethereum wallets.
Google (GOOGL) (NASDAQ:GOOG) has covered online advertising almost entirely for several decades and the tech giant from Silicon Valley is so advanced in this area that many see Google’s position as a monopoly. Although this may be true, now Ethereum Ads provides some reasons why their offer could be more worthwhile for users than that of the colossal competitor. The newly created competition from Google is definitely stimulating the online advertising market. How the tech company will react to the new competition remains to be seen.
Crypto Credit Cards Have Arrived
One of the strongest arguments against cryptocurrencies is their accessibility. However, that’s changing fast.
By and large, digital currencies are still a relatively young technology, but they have already celebrated notable successes. But no matter how good the technology is, it can only prevail if there are real applications. The large crypto exchange Binance now provides a solution. In April of this year, Binance announced a special Visa card that enables payments with digital currencies.
It’s extremely bullish to note, according to the company, that payments should be possible at over 60 million retailers and can basically be ordered by anyone whose country is currently supported by the stock exchange which currently includes:
Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Gibraltar, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
All things considered, by providing a tangible way to implement, convert, and spend crypto for everyday use, they are promoting a mission to make crypto more accessible to the masses. In other words, by giving users the ability to convert and spend their crypto data directly at merchants around the world, the crypto experience becomes more seamless and applicable.
Final Takeaways
In light of these observations, the ever-increasing demand meets a tight, limited supply. The result is simple: rising prices. Therefore, the position is also simple: buy the dips.
Whether you’re entering this market for the first time, or are experiencing doubt of adding more, keep in mind that debts are rising to ever new heights around the world. The most recent tally: 277 trillion dollars, or about 350% of world GDP.
The central banks around the world are in a precarious position:
- They can never again raise interest rates in the existing monetary system.
- Otherwise, bankrupt countries would go, in the parlance of my teenage daughter – “full-on” bankrupt.
- Zombie companies would officially collapse.
- Economies would experience protracted “sudden stops” (shout out to Mohamed El Arian).
- Bubbles would burst (again).
- Unemployment figures and debts would explode.
For these reasons, the destructive downward spiral of interest rate cuts and money printing will have to continue until the bitter and costly end. In the final analysis, the collateral damage is becoming more and more devastating and expensive, not only in monetary terms but also politically, economically, and socially.
As an investor and saver, to protect your purchasing power, you need limited values due to nature or mathematics to combat this excessive debt-making and money printing without interest and understanding – this is Bitcoin in a digital nutshell.
Finally, there has and always been talk of Bitcoin being “banned.” In my opinion, the risk of a Bitcoin ban is very low. Not only have politicians and regulators spoken out against it, but above all, Bitcoin is already an integral part of the financial world which is putting out more products in an unstoppable trend that will continue and even intensify because more and more big money will be invested in Bitcoin via investment products.
We are only at the beginning of a long journey.
Disclosure: I am/we are long MSFT, GOOG, BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.