Unless you have spent the last few years living in the wilderness completely sealed off from the world, you will already know what Bitcoin is. In July 2020 the Financial Conduct Authority (FCA) in the United Kingdom estimated that 3.86% of the general population now owned Bitcoin or an equivalent crypto currency. That’s 1.9 million UK adults. In the USA it is estimated that 11% of Americans currently hold crypto currency.
This week the price of Bitcoin nearly hit $20,000, up from a low in March of just under $5,000. The price has been volatile lately, so there is no way of knowing what the price will be by the time that you read this. What is certain is that Bitcoin has become mainstream. In November 2020 CNBC reported that payment giants Square and PayPal had become whales in the crypto market as their clients bought up 70% of the new supply of Bitcoin.
Between 800 and 900 Bitcoin are added to the market on a daily basis according to data firm Messari. Only 21 million Bitcoin can ever be mined (created), which gives it the same scarcity value as assets like gold. Critics might say that we have been here before. Bitcoin neared $20,000 around Christmas 2017. Some say that its price today is irrational exuberance manifest as a very modern form of tulip mania.
But there are plenty of signals that 2020 has been the year that Bitcoin has actually matured and grown up. The unique Bitcoin process of ‘halving’, whereby for every 210,000 blocks that are mined the rate at which new Bitcoin are released is cut in half, means new supply is contracting as new demand surges.
A lot of that demand is coming from Bitcoin Exchange Traded Funds, which provide investors with exposure to the profits of Bitcoin without exposure to direct investment in the asset, whose legal framework is still emerging.
The first Bitcoin-focused Exchange Traded Funds have already launched. This is attracting brand new investors with larger capital reserves into the market, including large scale institutional investors. Deutsche Boerse became the latest player to have a product listed with the BTCete Bitcoin Exchange Trades Crypto (BTCE). Swiss Bourse in Switzerland has also admitted a number of exchange-traded crypto products to its exchange.
Yet opinions on Bitcoin as an investment class, or as a ‘safe haven’ equivalent to gold, remain polarised. In October 2020 the FCA in the United Kingdom banned the sale of crypto derivatives to retail investors, citing their extreme volatility. Yet with Bitcoin ETFs already listed in Germany and Switzerland, the UK may still eventually follow suit and change its position/.
My own belief is that by 2025 Bitcoin could be worth $100,000, which is five times what it is today. I have been increasing my long position in Bitcoin for many years and with only one halving remaining, I have no intention of selling my holdings any time soon.
Tej Kohli is also an impact investor who backs growth-stage artificial intelligence and robotics ventures through the Kohli Ventures investment vehicle. Tej Kohli is also the founder of the not-for-profit Tej Kohli Foundation whose ‘Rebuilding You’ philosophy supports the development of scientific and technological solutions to major global health challenges whilst also making interventions to rebuild people and communities around the world. Twitter: @MrTejKohli.