As Bitcoin Adoption Grows This Year, Its Value Will Rise

Investors in Bitcoin (CCC:BTC-USD) generally have a loss in the cryptocurrency, according to a recent report in The Daily Hodl. The online magazine quotes a study by the Kraken exchange that indicates that holders in BTC are losing money on average in the latest downturn.

A Bitcoin (BTC) coin sitting on a mossy piece of wood.

Source: Shutterstock

However, unrealized losses are not as dire as the downturn from May 2021 to July 2021 before its rebound to new all-time highs. This is because presumably, investors were able to lower their average costs in the last downturn.

The Kraken study refers to a metric called the spent output profit ratio (SOPR). Any figure below 1.0 indicates that investors are below breakeven. This is where they are now, albeit not as bad as before earlier in 2021.

So far this year, Bitcoin is down around 20% on a year-to-date basis.

Moreover, since its recent peak at $68,789 on Nov. 9, Bitcoin is now down by nearly $32,000. That represents a tumble of 46% from the peak price in early November.

I suspect that just as investors did last time, many are now buying more Bitcoin now in order to lower their average BTC prices. That will also help their long-term investment horizon in the crypto.

The Latest in El Salvador

In other news, El Salvador, after adopting Bitcoin as legal tender, is withstanding flak from international institutions, according to Decrypt magazine. A number of monetary authorities have lined up against the country’s decision, including the International Monetary Fund, the World Bank, the Bank of England, and even some private banks like JP Morgan.

However, the magazine quotes a number of merchants they have found that enjoy using BTC as a second form of legal tender. It requires some education for their customers, but that seems to be worth the hassle, according to a number of them.

One imagines that the concern by monetary authorities could be that other countries follow El Salvador’s pathway into Bitcoin acceptance. This might have the effect of taking away the ability of the world’s central banks to be able to control their countries’ monetary policies.

Where This Leaves Bitcoin

Bitcoin’s decline seems to be bottoming out at this point. I suspect that if the Federal Reserve begins to raise interest rates, Bitcoin could actually reach a trough point. This might be if investors perceive that BTC is an alternative investment that offers non-correlated opportunities for investors.

Moreover, according to a recent article by Cryptoslate, the rate of Bitcoin adoption is starting to balloon. The article quotes a recent study that describes how the rate of cryptocurrency adoption is growing at an exponential rate.

There were 295 million crypto users globally as of Dec. 29, 2021. This is leading to a rate of adoption to over 1 billion users holding cryptocurrency by the end of 2022. Moreover, over half of them will be owning Bitcoin, according to the study. So far the El Salvador experiment with Bitcoin has not destroyed or supplanted its primary legal tender.

If this happens, Bitcoin will likely reach a trough as more and more people buy into BTC. So, combined with the fact that most holders now have a smaller loss than before, as well as new waves of Bitcoin buying, it’s likely that Bitcoin could make a rebound.

What to Do With Bitcoin

Investors who don’t already own Bitcoin might begin to see its recent prices as a good entry price.

Moreover, those who do own it are already averaging down to lower their costs by buying more Bitcoin. This will benefit Bitcoin’s upside in the long term.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.


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