You may love it, or you may hate it. You might even think this next-generation investment is only for computer geeks, or those with serious gambling addictions. But irrespective of your feelings, Bitcoin and the rise of so-called cryptocurrencies will change the entire financial paradigm.
I argue that in many ways, digital currencies have already rocked the often stodgy and slow-to-change financial infrastructure. Back in 2013 when Bitcoin prices first eclipsed quadruple digits, the mainstream viewed the cryptocurrency in a speculative, negative light.
For instance, CNN Money made sure you knew that Bitcoin was the “currency of choice” for drugs and illicit transactions. The mainstream media also cited criticism that Bitcoin could be worth a fortune, or nothing at all.
It’s fair to point out the seedy side of cryptocurrencies because that element actually exists. At the same time, focusing strictly on the negatives prevents viewing the digital markets through a broader perspective. Any new technology is susceptible to unlawful or otherwise illegitimate use. But over time, greater exposure leads to integration of that technology. More importantly, integration leads to cultural and societal normalization.
The latter point is already occurring. Today, it’s not at all uncommon to see reports from CNBC, Bloomberg, or other mainstream business publications discussing Bitcoin prices. And personally, I’m happy to see more of my InvestorPlace colleagues give cryptocurrencies a fair shot. Even Dana Blankenhorn, who doesn’t necessarily fit the stereotypical image of a Bitcoin trader, has written a number of articles about the technologies underlining cryptocurrencies.
What distinguishes me from many other writers, though, is that I’m extremely bullish on the cryptos. In fact, I see a case for $10,000 Bitcoin. And I’m not afraid of going long, even at these “ridiculous” levels around $4,700 or so.
Here are a few reasons why you too should go digital!
The Blockchain Technology
You can’t truly appreciate cryptocurrencies without acknowledging the blockchain technology. As Blankenhorn explains, the blockchain is “the idea of an encrypted ledger, with an audit trail to resist manipulation, and an Internet-like structure to resist attack.”
What makes the blockchain unique from other ledger systems is that the verification process is conducted not by authorized administrators, but rather, decentralized agents called miners. Utilizing top-grade GPUs from Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD), miners compete with each other to verify blocks of transactional data.
“Upon completion, the verified data block is entered into a sequentially-ordered ledger chain; hence the term, ‘blockchain,'” Blankenhorn explains. “Miners who successfully verified the blocks first receive a cryptocurrency unit, such as Bitcoin, as a reward.”
From an investor’s perspective, the granularity isn’t that important. What is important is that the blockchain exponentially improves upon our current transactional infrastrucure.
Eliminating the Middleman
As soon as the internet was launched, people began to devise ways of conducting online commerce. The problem with e-commerce at the time was that digital money or tokens could be replicated easily. To prevent fraud and the “double-spending” problem, middlemen offered services to validate online transactions’ legitimacy.
But the blockchain technology renders middlemen unnecessary. Each transaction is verified through the mining process, and thus, no one transaction is identical to another. That eliminates the double spending of the same digital currency.
Today, businesses no longer need to submit themselves to the mainstream financial hegemony. Some companies may view credit card overhead and maintenance costs to be onerous. Whatever the reason, the blockchain opens up alternative financial services.
Even major institutions like DISH Network Corp (NASDAQ:DISH) offer Bitcoin payment options. Admittedly, crypto adoption isn’t overwhelmingly popular among Fortune 500 companies. On the flipside, this means that digital currencies still have significant room to grow.
A Question of Time
On the surface, the idea of $10,000 Bitcoin sounds crack-smoking ridiculous. At such a meteoric level, the digital coin’s price tag would exceed Alphabet Inc (NASDAQ:GOOG) or Amazon.com, Inc. (NASDAQ:AMZN) tenfold. These are groundbreaking tech firms. In sharp contrast, cryptocurrencies are speculative financial vehicles.
But one of the critical reasons why Bitcoin prices continue to astonish us has nothing to do with financial valuation. Rather, cryptocurrencies are “timeless.” Bitcoin is the first open-source investment in human history. You can be anyone, anywhere, anytime — so long as you have access to the internet.
In comparison, Wall Street operates on a shockingly limited schedule. The markets open from 9 a.m. to 4 p.m. EST. This makes trading on the West Coast quite troublesome. In addition, the stock market isn’t open on weekends, and American holidays.
Compare that to Bitcoin, which is open 24 hours a day, seven days a week. It doesn’t care about holidays. If you want to trade during normal business hours, fine. If you want to trade in your pajamas at 3 a.m., have at it!
Most importantly, because Bitcoin trades 24/7, it has nearly four times the trading hours of a Wall Street stock. And because cryptocurrencies trade on the weekends and holidays, the extra mileage adds up quickly.
Put another way, one year of Wall Street trading could be the equivalent of four or five years of cryptotrading!
The Bubble Myth
Bitcoin prices entering bubble territory is one of the most-cited criticisms against digital currency investments. Yet I firmly believe that this is an unfair criticism. You simply cannot compare cryptocurrencies to any other traditional investment.
As I mentioned previously, the digital markets are essentially on an accelerated platform compared to Wall Street. Therefore, a few years of Bitcoin trading is the equivalent of a generational cycle on the Dow Jones. My thesis about cryptovolatility is that it stems from decades of human trading behavior condensed into a narrow time frame.
Click to EnlargeFurthermore, it’s not helpful to view Bitcoin prices on a nominal scale. When the cryptocurrency first launched, it was trading in the pennies. Today, it’s over $4,600. To get a better perspective, we should utilize a logarithmic scale. When we do that, Bitcoin does not look like it’s in a bubble.
Finally, to get to $10,000 Bitcoin, we would need to see less than a 120% move. That’s a virtually impossible ask of the Dow Jones within a three- or four-year time period. But with the cryptomarkets, anything and everything is possible.
By no means is this article meant to be an exhaustive case for $10,000 Bitcoin. Instead, I wrote this piece to help eliminate some of the mysticism and fear-mongering surrounding cryptocurrencies.
I believe the biggest challenge for Bitcoin investments is perception. We humans tend to explain new concepts using familiar analogies. That’s helpful in many respects, but for cryptocurrencies, it can be a hindrance.
Virtually every aspect of our lives has been impacted and improved with technology. For some reason, finance has yet to keep pace, until now. Bitcoin and the blockchain finally brings the digital revolution to money.
As of this writing, Josh Enomoto was long Bitcoin.