Investing in Bitcoin: risks, prospects, comparison with gold

The first Bitcoin cryptocurrency (BTC) has been with us for the 12th year, and its existence has presented many amazing discoveries.

Last week, October 31, Bitcoin11 years old. This date is another reason to think that cryptocurrency successfully passed through various tests, including halving. So the upcoming May 2020 reduction in block remuneration on the blockchain looks like an event that will once again lead to an increase in the price of this cryptocurrency - before or after halving.

Bitcoin has grown over its years by 3040332 times to the current moment. At the same time, more than 18 million bitcoins were already mined, so less than 3 million can be mined in the next 120 years.

Drawing attention to this fact, Plan B analystHe believes that this period is so long that for analyzing the price of cryptocurrency for decades to come, other models will be required than his Stock / Flow concept, which, he is sure, will fit for a period of 1-3 halvings, i.e. for the next 12 years.

I normally don’t deploy statistical models 120 years out into the future.I would be happy if the model holds for 1 or 2 or maybe 3 more halvings.Especially since BTC is measured in $ .. who knows what happens with $ if the FED keeps doing more QE (money printing).

- PlanB (@ 100trillionUSD) October 31, 2019

This model suggests that the quantityavailable bitcoins in stock (Stock) begins to increasingly exceed the influx of new bitcoins (Flow) during the year. Thus, this indicator grows, and Bitcoin demonstrates a stronger rarity than even gold.

Four problems of gold as an investment asset

However, bitcoin has another important advantage over gold.

Nobody in the world knows four things that are problematic with gold.

First— how much gold will be mined in the coming year.There is a risk that due to technology, a very large number of tons of this metal will be thrown into the market (Flow), which can bring down the market.
Second"Because of the same technologies, no one can be sure that gold will not befrom the Moon in the coming years.
Third— The question of the share of counterfeit gold in the world remains open.
FourthThe United States is considered to be the largest holder of gold in the world, it accounts for 25% of the global reserves of this metal, but there has never been any public audit in the worldwhat is actually in the vaults of the New York Federal Reserve Bank in the business capital of the United States and Fort Knox, Texas, is where these reserves are supposedly stored.

Bitcoin is a more understandable investment asset than gold

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In the case of Bitcoin, all these questions have simple answers.

Just over 21 million can never be producedbitcoins in the world, and although quantum computers are emerging, they also do not pose a threat to this rule, as analyst Andreas Antonopoulos says. And this, of course, is the big mystery of Bitcoin, whose appearance and “disappearance” of the founder under the name Satoshi Nakamoto does not have a completely rational explanation. Therefore, even versions about the extraterrestrial origin of the idea of creating Bitcoin are also circulating.

However, bitcoin is not only an activity fortechnological geeks and supporters of conspiracy theories: representatives of the political and business elite of the world speak about Bitcoin and cryptocurrencies, starting with Vladimir Putin, Donald Trump, Xi Jinping, ending with Elon Musk and Bill Geitz.

The word “Bitcoin” is included in the glossary of the prestigious Oxford English Dictionary.

The dollar is cheaper, bitcoin is getting more expensive

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What awaits bitcoin in connection with halving? The Plan B Stock / Flow concept indicates that after halving, Bitcoin should taxi to the take-off line and rise to at least $ 100,000 by the end of 2021.

Omg

No, not us - one of our subscribers after watching this conversation between Plan ₿ (@ 100trillionUSD) and @RaoulGMI.

OMG sums it up ... https: //t.co/VOP3ePodOR #bitcoin #gold pic.twitter.com/h6bmUdsDb3

- Real Vision (@realvision) October 18, 2019

At the same time, before the halving of 2020 itself, the average price of bitcoin on the market should be at the level of about 8.2 thousand dollars.

Analysts agree that the programThe weakening of the US dollar, launched by the US Federal Reserve through a decrease in the base interest rate and an increase in the issue of American currency, leads to a situation where it is worth noting that Bitcoin is getting more expensive, but that the US dollar is getting cheaper.

This understanding is reinforced by the fact thatUS public debt, apparently, generally gets out of the control of the financial authorities of the country, and has already exceeded $ 23 trillion. Thus, currently there is $ 1 million of public debt per bitcoin.

That’s more than $ 1,000,000 debt per 1 bitcoin.

- Bee Capital bv (@beecapitalbv) November 1, 2019

Analyst Max Kaiser pays attention to the factthat the beginning of the era of the weakening US dollar occurred at a time when almost a year ago Bitcoin was worth 3.3 thousand dollars. The policy of the US Federal Reserve leads to the fact that conventional currencies are weakening in general, and the world monetary system is becoming fragile.

Bitcoin Sustainability

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The mysterious Bitcoin shows that against the backdrop of suchglobal monetary instability, it looks attractive. Indeed, since April 2012, the volume of bitcoins moved on the network has been almost always stable - 50 million BTC, with the exception of two periods, from August to September 2012 and from December 2015 to March 2016, when this figure was more than 100 million BTC monthly .

Even a strong analyst such as Plan B simply does not have an explanation for such a mysterious property of network stability.

New chart #bitcoin network velocity:
— utxo per month increases from 10K to 10M
— btc per month increases from 1M to 50M
— $ per month increases from 10M to 1T

Who has more info on:
— btc/month 100M+ peaks (Aug-Sep12, Dec15-Mar16)
— why btc/month is stable at 50M since Apr12 pic.twitter.com/AzObjVaQ8l

- PlanB (@ 100trillionUSD) November 2, 2019

Bitcoin as electricity

Meanwhile, bitcoin is more and more reminiscent of itsthe properties of electricity: almost every home has a refrigerator, and few people understand how electricity is transmitted. This is fundamentally known from the school physics course, but the details and formulas of many have probably already been forgotten.

Exactly like Bitcoin: you can forget how much hashrate in the bitcoin network was in December 2017 or now, how many bitcoins are there at the moment and with what frequency the blocks appear, as well as a number of other technical information, but everyone understands that bitcoin is part of the reality that is coming.

This can be called the more global word digitalization, and see not only blockchain and cryptocurrencies, but also a number of other new technologies. And this is seen in the political elite of Russia.

Thus, on November 3, Russian Prime Minister Dmitry Medvedev stated:

“We are witnessing a completely new economic structure. Digitalization of our life is happening rapidly. And this digital future is just around the corner. ”

The likelihood of a 10% or higher Bitcoin price increase is already an excellent investment opportunity.

Bitcoin will go up, there is a consensus in the cryptocurrency community about this.

Analyzing the Stock / Flow model, technology developer Paul Bohm also came to the conclusion that in two years, bitcoin will go up 10 times.

Is it weird to think an asset you can buy today will be worth 10x in 2 years?

What probability do you put on this happening?

My lower bound probability is 25% which implies a 2.5x EV and 25% Kelly criterion max bankroll exposure.

- Paul Bohm (@paulbohm) November 2, 2019

But what is the likelihood of this scenario? Plan B believes that even if this probability is just over 10%, it already represents an “interesting opportunity.”

Plan B itself sees the probability of this development scenario as “definitely above 10%.”

However, he emphasizes that “perhaps morean important fact is that the coincidence in time of a sharp increase in the price of a digital asset and a halving is very rare ”, so the rise in the price of bitcoin will not be so predictable for the exact time period.

Three Black Swans for Bitcoin

Plan B also indicates that there are three blacksSwan ”in the fate of Bitcoin: a serious technical problem in the blockchain itself, a hacker attack on Bitcoin, as well as the likelihood of prohibitive regulation in relation to this cryptocurrency in some countries.

However, firstly, all three “black swans” are unlikely to converge at the same time.

Secondly, over the 11 years of its existence, BitcoinI have already encountered similar situations, but a number of countries have emerged in the world where the authorities’ attitude towards cryptocurrencies is strategically positive. Economic feasibility at one time led China to abandon the idea of banning cryptocurrency mining, and has recently led to Beijing’s recognition of blockchain as a technology, as well as the desirability of its use, including in the financial sector.

Four factors for break-even cryptocurrency mining

Cryptocurrency mining is one of the fastest growing industries in China. Bitcoin mining is now being increasingly analyzed in terms of the impact of halving on this activity.

Analyst Andreas Antonopoulos believes that it is necessaryevery day, calculate the profitability of such activities, as well as make plans for profitability for the coming days, weeks and months, if it is not supposed to update the mining equipment park.

However, the upcoming halving is forcing minersdo otherwise: switch to work on the most advanced bitcoin mining equipment, and this, according to Antonopoulos, is the right strategy. The analyst believes that there are several factors that affect the profitability of mining:

the effectiveness of ASIC and other "iron";
price of electricity;
block reward;
the use of financial instruments to hedge price risks.

Halving will lead to the mining industrywill become one of the most modernized in the world - only such players working on hi-end equipment will remain in the industry. Miners should also think about choosing profitable electricity tariff plans.

The best option for cryptocurrency mining, as now, will remain cloud mining, due to the flexibility of contracts and more favorable working conditions than mining on its own equipment.

Bitcoin Futures and Options - A Response to Price Volatility

Finally, bitcoin futures as well as the upcomingOn December 9, the launch of Bitcoin options on the Bakkt platform provides miners with the opportunity to fully hedge the risks of bitcoin price volatility. The fact that options for bitcoins can be launched on the CME Group stock exchange has also recently become known.

Thus, in the global cryptocurrency marketWhen building futures and options buying and selling strategies, you can achieve the goal of avoiding critical losses during cryptocurrency mining. In creating a portfolio of such financial instruments, one can completely rely on the futures and options management technique that is familiar to professional classic traders.

This technique is even more effective than thatA classic technical analysis that cryptocurrency analysts are trying to apply to the price dynamics of digital assets. They are looking for “support levels” and “resistance levels”, which often does not lead to effective forecasts of the prices of digital assets for the short and medium term.

Moreover, the long-term forecast in principlequite obvious: if you are not crypto skeptics Nuriel Roubini or Peter Schiff, who claim that bitcoin is worthless, then the cryptocurrency market will tend to grow in the future, as it has been for the whole time of its existence, if we take the history of cryptocurrencies in general.