It’s fair to say that compared to price levels just a few years ago, Bitcoin is already flying high. But most in the Bitcoin community believe that it can go much higher. All the way to the moon in fact.
However, any savvy investor will know better than to just blindly follow the optimism of the enthusiasts. Let’s take a look at some fundamental factors underlying the value of Bitcoin to determine when might be the best time to buy Bitcoin, if that time is now, and if Bitcoin really is going to the moon.
The Best Time to Buy Anything
If your goal is to make a profit, you want to buy low and sell high. That means the best time to buy any asset is when it’s undervalued. An asset might be undervalued for a few reasons:
- It’s difficult to obtain;
- The market has lost confidence (herd mentality);
- Most buyers aren’t aware of the underlying value;
- Bad publicity.
Is Bitcoin Undervalued?
You could argue that the Bitcoin price is under downward pressure from all of these factors. Firstly, Bitcoin is still quite difficult to obtain for most people. Cryptocurrency is a whole new technology that has a steep learning curve. Most non-techy people have no idea how to even begin to obtain Bitcoin. They probably don’t even know what a private key is, let alone how to keep one safe. Learning the technology is where most people quit when it comes to Bitcoin. Even if the technology isn’t a big hurdle, some countries have banned or restricted their citizens’ access to Bitcoin.
This means many potential buyers are currently out of reach of the Bitcoin market. But that will likely change in the future. Better wallets and applications are being developed all the time to make Bitcoin easier to use. Bitcoin exchanges are making Bitcoin faster, safer and cheaper to buy and sell with credit cards and bank transfers. The list of countries available to these exchanges is growing.
All this means that Bitcoin’s potential customer base is increasing quickly, and that’s why the demand for Bitcoin rises dramatically every year. As we all know, Bitcoin has a controlled supply with a maximum of 21 million units that can ever be mined. About 80% of those have already been mined, which means all new customers will be competing to buy the same Bitcoins. Demand will continue to vastly outstrip supply, and Bitcoin may well go up.
The Bitcoin market has already been through a few bubbles and crashes in its short life. The peak of which has been the parabolic price rise at the end of 2017 followed by the extended recession in 2018. The Bitcoin misery index puts the cryptocurrency market momentum at an all-time low right now.
So are things really looking down for crypto in 2018? If you bought Bitcoin with your life savings in December 2017, yes. But, otherwise, things have actually looked good for crypto this year. Regulators have started to take Bitcoin seriously, giving out positive signs that the market will be allowed to continue innovating. The Bitcoin scaling problem has also had some important developments.
The market is still a bit nervous following the huge losses of early this year. Many people got burnt and embarrassed as they watched their investments and confidence tick down with the Bitcoin price chart. That confidence looks like it’s starting to turn now, and more and more people are preparing for new investment in Bitcoin.
The media cycle for Bitcoin goes through spells of hype and horror. Considering that the price of Bitcoin is linked to public sentiment on social media, this is important. 2018 has seen mostly gloomy headlines for cryptocurrency, especially compared to last year. This means that the price could be being pushed lower by the media.
The financial world still doesn’t fully understand Bitcoin. That’s not surprising, it’s a complete departure from our current financial system and way of thinking. The idea of decentralized, programmable, algorithmically alive currency requires a huge mental leap.
The people that struggle most with this new idea for currency are the people that understand the old financial system the best: economists, governments, bankers, investors, and traders. This should also come as no surprise. When the internet first started disrupting the world in the 1990s, it was laughed at by the telephone operators. They understood the old way of doing things best and failed to see how powerful the internet could be.
One of the most experienced investors in the world, Warren Buffett, calls Bitcoin “probably rat poison squared”, as it doesn’t produce anything. A statement highlights just how much top investors are struggling with the idea of why the internet might need a digital, cross-border currency and store of value.
Buffett and other masters of the old system have the big money, and they haven’t come near Bitcoin yet. But big money names and institutions are starting to change their thinking. When they do and decide to dedicate even a sliver of their billions towards Bitcoin, the floodgates will open.
Adding it Together
Of course, Bitcoin is still a crazy experiment in a brand new industry, but it’s already done countless times what experts thought was impossible. When the usability, access, hype, investor confidence and public understanding of Bitcoin all start to pick up over the next few months or years, the value of Bitcoin is going to change.