January 17, 2021
Top

Want to retire early? Add Bitcoin to your investment portfolio

Bitcoin has a yearly return of 230% over the past ten years. Get ready for a stellar 2021!

AND although the first edition of this article was published inNovember 2020, and much has changed since then, it has not lost its relevance and importance. Here you will find Bitcoin price predictions for the coming years, backed up by financial analysis, investment advice and tips, and a lot of other interesting and important information. Happy and useful reading!

***

If ten years ago you invested in bitcoins the $ 4 you spent on a big cup of coffee at Starbucks, you would have a whopping $ 688,050 in your hands today. Madness, isn't it?

And this is an annual return of 234%. Compare this figure with, for example:

  • shares (10.5% for the S&P 500 index),
  • real estate (3.8% for the median US home price) and
  • bonds (0.7% for Vanguard BND securities investment fund Vanguard Total Bond Market ETF).

</p>

Thus, the profitability of bitcoin by orders of magnitude exceeded the profitability of shares, real estateand bonds. For a clearer view, we can standardize the above numbers and compare how much each of these assets would grow from $ 100.

</p>

For one single dollar invested in bitcoinin 2010, today you could buy a house. And if you invested just a hundred dollars at that time, you could retire right now, no matter what age you are.

In this article I will try to clarify why bitcoin prices should risehow to get involved in the game before it's too late, and I'll tell you why Bitcoin is a revolutionary technology.

In short, long-term movementBitcoin's price is mathematically predictable thanks to its four-year "halving cycles". Moreover, there is an acute shortage of tradable bitcoins in the market, as 1) PayPal and Square are buying up almost all newly introduced bitcoins for their millions of customers; 2) large institutional investors are fighting for existing bitcoins - a deflationary and reliable asset - in the face of incessant stimulation and money printing around the world; and 3) retail investors (ordinary people like you and me) willing to take part in this movement. In the current situation, there is a serious imbalance between supply and demand.

Why Bitcoin price is expected to explode in 2021

There is a whole galaxy mathematical, economic, financial причин, а также факторов, связанных с consumer behavior, due to which the price of bitcoin should soar to the moon in 2021.

1. Mathematical reasons - Bitcoin bullish rally after the third halving

Just like gold, bitcoin is in short supply.

The number of bitcoins is limited and represents a finite amount, only 21 million to be exact.

Limited supply pushes prices forbitcoins are on the rise, and so far we have seen the rise occur approximately linearly on a logarithmic scale, which means prices are actually rising exponential way. All other asset classes (bonds, stocks, real estate, etc.) rise in value linearly... In other words, while other investments continue to grow steadily, Bitcoin's growth rate is increasing. It's just awesome!

Like gold, bitcoin can also be mined.

In order to increase life expectancyBitcoin and ensuring that it remains a deflationary asset, Bitcoin's creator Satoshi Nakamoto included a clause in its code that the reward given to miners is halved every 210,000 blocks mined, or roughly every four years. This unique feature of bitcoin divides its history into distinct four-year periods.

In connection with the events called"Halving", the price of bitcoin rises in 4-year cycles. Moreover, the price of 1 BTC grows approximately linearly on a logarithmic scale. This means that it takes about the same amount of time to jump from $ 1 to $ 10 as it takes to jump from $ 10 to $ 100. That is, prices are growing exponentially.

Historically, every eventthe halving of the reward led to a bullish rally, during which prices skyrocketed throughout the year. Such cyclical phenomena are bull rally after halvings.

1st halving (2012): Bitcoin has seen a 10x rally in a bullish rally after the halving, increasing by an order of magnitude from $ 100 levels to $ 1200.

2nd halving (2016): The price of bitcoin has risen 20 times in a post-halving bull rally, increasing by an order of magnitude from the $ 1,000 range to $ 20,000.

3rd halving (2020): After cutting the reward in half in May, the price of bitcoin at the time of writing has surged from $ 10,000 to $ 15,000 by November 2020.

We just recently entered another bull run, which is expected to run until the fourth quarter of 2021.

Price benchmarks

The preliminary price forecast is in the range of $ 100,00 - 160,000 according to diminishing returns theory, or $ 280,000 for Stock-to-Flow models... Some analysts predict even morehigh price - about $ 400,000. I would assume that the lower limit (and this is rather a bearish forecast) will be about $ 70,000. And this, by the way, is an increase of 4-25 times over the next year, which will further strengthen the reputation of bitcoin, as the most effective asset today.

Price behavior during all previous bullish runs to help substantiate price predictions for the current cycle. : Conquer Trading & Investing

The graph below showscomparing all three post-halving bull runs with standardized starting prices. We are still in the early stages of the rally after the third halving.

All bullish runs after halving with a starting standardized price. As you can see, the new historical maximum is still far away. : Jordan Lindsey

If you miss this opportunity, you will have to wait until 2024 for the next halving of the reward. And time is running out.

Future price drawdowns 2021-22

After the current rally is over, you probablyit is necessary to exit bitcoin for a couple of years due to the expected drawdowns in prices, which, according to historical data, sometimes gobbled up to 85% of all-time highs (All Time High / ATH).

Every bullish rally is traditionally followed bylong-term phase of the bear market, during which up to 85% of profits are lost. The next bearish phase is predicted to begin around the end of 2021. : Jordan Lindsey

Each bull rally is traditionally followed by a multi-year bear market phase, during which up to 85% of profits are lost. The next bearish phase is predicted to begin around the end of 2021.

Considering the above, some are of the opinion that the rise in Bitcoin has been so powerful that we are now in supercycle, at which there will be no drawdowns in price after 2021. That is, the price will continue to move steadily upward towards the $ 500,000 to $ 1 million mark.

You can read more about halves and price predictions here, here, here, here, here, here and here.

2. Economic reasons - hedging inflation in the context of COVID-19

Bitcoin prices have outpaced gold prices in the past 12 months. The bitcoin rate is red, and gold is yellow. images: MarketWatch.

The second reason for the rise in the price of bitcoin is its reputation as a "safe haven" reserve asset.

As COVID-19 is having a devastatingimpact on the global economy, reserve banks around the world continue to pump up their economies with additional cash. In 2020 alone, about a quarter of all US dollars in circulation were printed. The G10 countries have already committed to a monthly commitment of $ 300 billion towards a quantitative easing (QE) program in 2021.

All this will push investors to invest theirmoney in safe-haven assets deemed reliable to hedge against inflation and government tomfoolery. The traditional representative of such safe haven assets was gold, but now bitcoin also belongs to their cohort, which can be considered as digital gold... According to JPMorgan, older investors likeas a rule, they prefer to invest in gold, while the younger and versed in the intricacies of financial technology seek to acquire bitcoins. The fundamental difference is that bitcoin performs better, orders of magnitude superior to gold.

Robert Kiyosaki summarizes the situation as follows:

“When the dollar depreciates, they (the government)begin to print it in large quantities. And people continue to keep their savings in it! Speaking of losers. You have to remember this tightly: the dollar is worth less, less and less. At the same time, the more expensive bitcoin becomes, the fewer new units are released into circulation. This process is called "halving" or "halving". Thus, the price rises and the quantity decreases. In the meantime, the dollar is going down, but they are printing more ... so why would you keep your savings in dollars? "

3. Consumer Behavior - Mass Adoption

images: PayPal via How Stuff Works.

Deficit and inflation alonehedging cannot explain the rise in bitcoin's value. Otherwise, Charlie Morris explains, the price of gold will go up indefinitely if we suddenly stop mining. The third reason for the rise in value is the rise of massive adoption of bitcoin by individuals and institutional structures.

It is due to the widespread adoption of bitcointhere is also an increase in its price. As cryptocurrencies become more prevalent in our today's financial world, people are starting to transact using them. As Sylvain Sorel has repeatedly stated, Bitcoin is money, not just another technology. Its cost growth is almost inevitable.

Some of the recent developments of note:

  • Explosive growth of institutional adoption. Take for example Microstrategy, a NASDAQ-listed company that recently made Bitcoin its main treasury reserve asset after building up $ 625 million of BTC. Square at the beginning of October 2020. Former hedge fund manager Goldman Sachs predicts that some of the world's largest companies such as Apple and Microsoft, are actively preparing for acceptance on the balance sheetbitcoins. (And more recently, even Elon Musk has also shown interest - more on that later). Placing any of these large S&P 500 companies with just a small fraction of their surplus cash in BTC would have spiked prices. Finally, Fidelity Investments, one of the largest asset management companies in the world, has launched an ETF for qualified investors and has recommended holding 5% of the portfolio in bitcoin.

  • Mass acceptance at the consumer level. Let's take PayPal, which at the end of October 2020 announced thatwill provide its 346 million users with the ability to buy and spend bitcoins and some other major cryptocurrencies. Financially revolutionary application CashApp from the company Square provides users with the ability to buyand have been selling bitcoins since 2018. Together, PayPal and Square are currently buying up almost all newly mined bitcoins, ensuring that supply remains low going forward. Following the statement made by PayPal, the Chairman Virgin galactic noted that:

... all the major banks hold meetings to discuss how to support Bitcoin. This question is no longer optional. He went into the category of an urgent need.

Ultimately, the intrinsic value of bitcoinis determined by the processes of adoption, implementation and use. As the very first cryptocurrency, BTC had the first-mover advantage. Moreover, the larger BTC became, the more value it acquired due to the compounding nature of the network effect.

After he has proven his worthFor a large enough number of people around the world - individual, retail, and now institutional consumers - by early 2021, Bitcoin had become too significant an asset to fail. The price movement is still volatile, but it is significantly less than during the bullish rally in 2017, when drawdowns were 30-40%.

In the current bull run, the bears have timeadjust only 5-15% before colossal buying pressure quickly pushes BTC back to its previous levels. This brings us to the next point: huge demand for bitcoin amid dwindling supply.

4. Economic reasons - Record high demand for bitcoin

images: Bitcoin.com.

Ultimately, there are simply not enough bitcoins to meet demand.

  • Insufficient supply: According to Glassnode, 78% of circulatingbitcoins are illiquid, which means that only 4.2 million of the 18.7 million bitcoins currently in the system are available for buying and selling. Basically, there is a record number of big and small hodlers (from HODL) - bitcoin owners who, realizing the potential to hold BTC, refuse to sell. In addition, it is also known about 3-5 million bitcoins, which were lost forever, due to the fact that people lost their keys and the like. Thus, this is putting pressure on Bitcoin mining to meet the current unprecedented level of demand.

  • High demand: Wherein, PayPal and Square buy over 90% of 900 recently minedbitcoins every day. Moreover, there are only about 3 million bitcoins left to mine. Limited to 21 million units, the supply is deflationary and continues to decline every day. While these fintech companies are gobbling up newly mined BTC for their millions of customers, an ever-growing number large organizations fights for bitcoins in circulation forown investment portfolios. Some of the largest S&P 500 listed companies (like Apple, Microsoft or Tesla) will want to play in 2021. Adding fuel to the fire, there is categorically weak interest from retail investorsunlike the 2017 bull run. All this can only mean one thing: prices are going up!

Michael Saylor:If you want to provide a $ 100 billion service to your shareholders, convert your $ TSLA balance from USD to #BTC. Other firms on the S&P 500 will follow your lead, and over time it will rise to $ 1 trillion. Elon Musk: Are such large-scale deals even possible? Michael Sailor: Yes. Over the past months, I have acquired #BTC worth over $ 1.3 billion and would be happy to share with you my work on this topic offline - from one rocket scientist to another.

In a Twitter conversation with the CEOMicrostrategy Michael Sailor Elon Musk discusses the possibility of placing some of Tesla's reserve cash in bitcoin. An increasing number of institutional investors are counting on BTC to increase their shareholder value. Sailor, once a bitcoin skeptic, transferred $ 1.3 billion of his assets to bitcoin. : Twitter.

***

How to invest and trade during the 2020-21 bull rally

Bitcoin has been on a healthy and real rise since November 2020, a month after I originally posted this article. images: eToro charts.

So you've made the decision to profit fromthe current bull run of bitcoin. What strategy will you choose? You'd better decide on it before you enter the game, because trading a volatile asset without a strategy is the most guaranteed way to lose your money.

Jordan Lindsay offers a choice of three strategiestargeting different levels of hands-on experience and effort:

1. Buy and hold (Buy & Hold). Buy as much bitcoin as possible beforethe price will reach $ 20,000. And even if you are already late for this train, it is still not too late to get into the game while the price is below the $ 35-40,000 level. Then hold your bitcoins until the end of the bullish rally, which, according to forecasts, will have to for about the fourth quarter of 2021. Prepare mentally for large price drawdowns along the way. Don't worry, this is as it should be, everything is going according to plan. You do not swing trading, you hold the asset until the price reaches a certain target at a certain time. This strategy is by far the easiest and most passive option, and the most sensible for inexperienced investors. (addition for January 2021: in fact, this is a very sensible strategy even for experienced investors and traders).

2. Buy and hold (Buy & Hold). Buy more during large corrections. If during the coming year you havefree cash, then increase your position during large adjustments. This is the smartest choice for most people looking to increase their brokerage income throughout the year.

3. Buy and hold (Buy & Hold). Calculate the time for large corrections. This is very difficult to implement.Jordan noted that in the past, the price of BTC has tended to reach 160-170% of the low of the previous correction, and only after that there was a significant drop in value. This strategy involves closing some part of the BTC position in the immediate vicinity of this point and reopening the position at a lower price. (addition from January 2021: This strategy is very risky - there is a high statistical probability that strategies # 1 and # 2 will be optimal for you). Jordan, an experienced trader and one of the bestof the authorities on the price movement of bitcoin, told his followers in December that he is now focusing on strategies # 1 and # 2 in this bullish rally. And what are the reasons for this approach? First, the above observation of a large dump after a 150 percent gain may be fundamentally flawed in this cycle. This is because Bitcoin's fundamentals are too different from those during the 2017 bull rally. This means that predicting when major corrections will occur is something of a fantasy. Secondly, corrections can be relatively small (only 10-15% instead of 30% +), which leads to non-execution of orders and re-entry into the market later at a higher price. We already faced a similar situation between November and December 2020, when the pressure from buyers was colossal due to the huge demand for BTC from institutional investors. Again, Jordan abandoned strategy # 3 as too risky, even for himself.

Anyway, I'll give you a concrete example to illustrate the 3rd strategy:

  • As of December 10, 2020, the last major correction was ~ $ 16,500.
  • Hold your bitcoins until the price rises 150%. That's about $ 40,000.
  • Start selling some of your BTC at that price.For example, close 5% of your position at $ 40,000, another 5% at $ 40,500, another 5% at $ 41,000, and the last 5% when the price reaches $ 42,000. As a result, it turns out that you will sell 20% of your assets in anticipation of a large correction.
  • At $ 45,000 BTC starts a big correction (but again, the risk is that this may not happen, or will happen sooner or later)... Let's say BTC rolls back 30-40% (although, again, the risk of drawdown is much less)giving you the opportunity to buy at significantly discounted prices.

For most people 1st and 2nd strategies(buying and holding; adding to a position during a correction) is absolutely the right choice. Given how the current bull run is progressing (as of January 2021), I would say the 3rd strategy is akin to gambling. Be rational and sensible.

Finally, much of this bullish run should be expected to be boring, and Bitcoin will trade sideways for a significant portion of the time ahead of rapid and sharp surges.

At least 50% of the Bitcoin bull market is bearish and / or boring. Look at 2017. HODL.

Large price movements in Bitcoin tend to be impressive and fast, followed by extended periods of slow pullbacks and / or consolidations. : Twitter.

Where to trade bitcoin

I use eToro, which providesa universal platform for trading stocks, cryptocurrencies, goods and other social exchanges. Check out here, here and here for some comparisons between different platforms.

If you're worried about market returns under JoeBiden, take a look at my evidence-based article comparing market performance between Democratic and Republican governments. In short, this should not affect the dynamics of Bitcoin's development, as none of the candidates showed serious interest in regulating BTC, and did not appoint key officials with such an interest. Plus, with Republicans maintaining control of the Senate and Democrats pushing to print tons of damn money in 2021, assets should remain strong in the coming year.

***

Frequently asked questions about Bitcoin

What is Bitcoin?

Blockchain Is a digital ledger thatcaptures transactions between two parties in a continuous and verifiable manner, without the need for an intermediary such as a bank. Within blockchains, transactions are grouped into blocks and are linked together using cryptographic means.

Bitcoin Is the world's first commercial blockchain application, representing:

  • way of exchange (like, for example, cash)
  • used as store of value (like gold)
  • speculated as financial instrumentt (like stocks)

As a digital exchange method, bitcoin has solved the notorious double-spending problem.

What's so special about Bitcoin?

In short, blockchain is a revolution in technology and bitcoin is a revolution in money.

Bitcoin is a unique phenomenon in the history of mankind, because until now, people have never known anything like it, which would simultaneously combine the following three qualities:

1.digital nature

2.deficiency

3.decentralization

Gold is scarce and decentralized,but not digital. Stocks can be scarce and digital, but they are centralized. Fiat money is certainly not in short supply - central banks continue to pump billions of dollars into our economies right now! Bitcoin is suitable on all counts.

Philosophically, bitcoiners believe thatBitcoin is putting power back into the hands of the people. When governments and central banks control the supply of money and can change its real value at their whim, printing more of it as they see fit, they gain economic power over us. Decentralizing bitcoin avoids such silly interference, and its scarcity helps preserve value. This is a revolution in money.

Bitcoin management

Bitcoin governance is different from traditional corporate governance.

  • Bitcoin relies on algorithms, open source, and a developer community to govern the network. Bitcoin relies on an algorithm proof-of-work to secure and verify transactions and create new bitcoins. High-performance computers (so-called bitcoin-miners) compete with each other upon confirmationtransactions by solving cryptographic math puzzles. Miners who win such a competition are rewarded with new BTC for their efforts.
  • Unlike governments and paper banksmoney, due to the fact that Bitcoin is decentralized and open source, there is no central authority to control its further development. The BTC source code was written by an unknown person or organization under the pseudonym Satoshi Nakamoto. Developers who make changes to the source code need to consider whether their changes align with Bitcoin's vision, meet minimum implementation standards, and align with the consensus of other developers.

Financial indicators and assessment methods

Since Bitcoin is not an asset,cash generators, traditional metrics such as revenues, revenues, P / E and P / B ratios, and so on do not apply to BTC. Instead, other indicators are taken into account, for example, such as:

  • Hashrate... This is the number of those math puzzleswhich the Bitcoin network can solve every second. The higher the hash rate, the more secure the network itself. The current hash rate of BTC is 125 TH / sec - an increase of 32% over the same period last year.
  • Bitcoin dominance index over altcoins... This metric measures the market share of bitcoin in relation to all other cryptocurrencies. BTC's dominance index is currently 65%.
  • Confirmed transactions per day. One new block is confirmed by miners every 10 minutes. The Bitcoin network processes 347 thousand transactions per day - an increase of 6% year on year.

Investment risks

  • Low acceptance rate.This is the most significant existential risk that threatens Bitcoin. Fortunately, many investors are in the mood for long-term bullish growth in bitcoin precisely because its institutional and retail adoption is showing no signs of slowing down. Bitcoin has settled here for a long time.
  • Regulation.An example of such regulation is the prohibition of bitcoin as such by the state. However, it seems extremely unlikely that all governments will jointly collude to ban Bitcoin. A much more serious danger is that governments are starting to create their own digital currencies, something that they can fully control to counter Bitcoin.
  • 51% attack.This is an attack on the BTC network, for which a group of miners collude to control more than 50% of the network hashrate. With this level of control over the bitcoin network, attackers could prevent new transactions from being confirmed, reverse transactions, and double-spend. Such a scenario, although extremely unlikely, is technically possible.

Thanks to Silvan Sorel and Tomislav Rogul for their valuable comments.

***

Application for calculating the annual rate of return

Understanding the potential of compound interest can transform your life.

Annual rates of return can be calculated as follows. For an asset worth FROM, the final price F - after summation n years at annual rate of return r - determined by the formula:

</p>

Applying this formula to Bitcoin, we get:

</p>

***

In conclusion

If you are new to investing, check out my guide here, especially the second half.

Bitcoin bullish rally from 2017-18 andthe collapse that followed was fueled by fear of missed opportunity (FOMO) on the part of retail investors, which turned the asset into a speculative bubble.

In 2020, the fundamentals of bitcoin are alreadyformed. The bullish rally after the third halving continues, supported by massive institutional adoption; the infiltration of supply, driven by bitcoin whales and large companies such as PayPal and Square (which ultimately ensure that the common people get bitcoins); and its status as a safe haven asset in the face of record-breaking economic stimulus.

As a retail investor, you need to becompletely ready before BTC hits the $ 20,000 mark. Bitcoin price is predicted to be between $ 70,000 and $ 325,000 by the fourth quarter of 2021. After that, you will be out of the game, making a pretty good profit.

But if you are in a long-term gameperspective, then just keep your bitcoins (HODL) and buy more during the price drops. Prices are projected to reach $ 1 million as early as 2025. Bitcoin came in earnest and for a long time and is not going anywhere - Bitcoin's limited supply of 21 million units and continued mass adoption should ensure its further progress to the top.

***

</p>
You can always thank the translator for the work done:
BTC: 1CvdCVGXEdfgjRKJS7fZWXgyYTovb5vx96 
ETH: 0x1D1d0d1e84496953bd03B83b4533F717e482Ed4B