This is an article that I published on medium.com yesterday. Please feel free to view it here: (Medium Article). If you could leave a comment and a like over there, it would be greatly appreciated! Thank you.
Cryptocurrency has seen mainstream media attention off and on throughout the last decade. Despite this, it has often been dismissed by large corporations and institutional investors as too volatile and not worth their time. This recent bull-run has seen the price of Bitcoin increase from approximately 11,000 USD as of October 1, 2020 to an all time high of just above 58,000 USD on February 21, 2021.
In 2021, Bitcoin has become an attractive investment to large companies and investors. Recent major purchases of Bitcoin have occurred from a handful of major companies, including a 1.5 Billion USD purchase by Tesla, a 1 Billion USD purchase by MicroStrategy (which currently holds approximately 90,000 Bitcoin), and a 170 Million USD purchase by Square. In addition, A Dubai private equity firm known as IBC Group announced that they wish to spend approximately 4.8 Billion USD in order to purchase 100,000 Bitcoin, which would be the single largest purchase of Bitcoin in history.
What do all these large purchases of Bitcoin mean for the retail investor? It appears that the consequences may be a double-edged sword. With institutional investors holding significant amounts of Bitcoin, it is in their best interest to mitigate any potential of a repeat of the crash that occurred in 2018. However, the original scope of Bitcoin was to be a peer-to-peer system independent of any major financial institutions. It seems that Bitcoin no longer fits this criteria and has entered the realm of being considered ‘Digital Gold’. In my opinion, these companies are not passionate about the possibilities that Bitcoin and other cryptocurrencies represent. To paraphrase Elon Musk: owning Bitcoin is only a little better than holding conventional cash. Of course, there is nothing wrong with these companies and investors seeking out more profitable investment opportunities.
Another issue that may become prevalent in the near future is scarcity. Within its code, Bitcoin is set to have a limited and finite supply that totals to 21 million. As of 2020, approximately 18.5 million Bitcoins have been mined. This may seem like a large amount, but there is potentially millions of Bitcoin that have been lost due to private keys being lost, hard drives dying, or people simply forgetting the location of their Bitcoins. To compound this scarcity, these large purchases being made by companies that plan to hold Bitcoin long term will reduce Bitcoin availability to retail investors as well. For example, it would take Bitcoin miners over 100 days to mine 100,000 Bitcoin in order to replace the amount that IBC Group plans to purchase.
What does the future of Bitcoin look like? Unfortunately, it is impossible to predict. The trend of corporations and institutional investors purchasing large amounts of Bitcoins is likely to continue. With numerous other cryptocurrencies fulfilling the role of peer-to-peer transactions, Bitcoin will continue to be considered digital gold. This increasing amount of institutional support will likely change the Bitcoin ecosystem dramatically over the next few years.