A Case for Bitcoin
By: Josh Rogers
Some view Bitcoin as a great investment, while others view it as a complete gamble. I tend to fall into the first category because I believe it has great potential. While this topic could easily be discussed in great depth, I will share a few basic components that support this asset’s credibility.
Over the years, Bitcoin has been considered a volatile investment. As a whole, the cryptocurrency market experiences extreme fluctuations in value. In this relatively new market, much potential for growth exists, but volatility is to be expected since there are many unknowns.
Bitcoin is the first cryptocurrency. It can be described as a fully computerized currency protocol. Its main purpose is to seamlessly allow payments to be sent and received through a secure network in the form of bitcoins, allowing value to transfer electronically without any third-party involvement such as a bank.
The network requires the participation of individuals to keep it running and to confirm transactions as a part of the blockchain. Blockchain technology is an added layer of security that allows information to be validated on multiple servers rather than just one. Bitcoin “miners” use specialized computers to validate transactions on the network and in the process earn fractional amounts of bitcoin as a reward for helping the network function properly.
Despite countless attempts, the Bitcoin network has never been hacked, speaking highly to the network’s security. This component is foundational for the network’s success since its sole purpose is to facilitate secure transactions. If the network remains unaltered, Bitcoin retains the potential to continue to increase in value over time.
When considering the recent drop in Bitcoin’s value, it can seem like the network is failing. However, looking beyond the short-term performance, there has been an upward trend in its worth since its establishment nearly 14 years ago. Because Bitcoin has a fixed supply, a time will come when all bitcoins have been “mined” and its value should level out. This event will not occur, however, for over one-hundred years when the last bitcoin is mined, leading to another promising component of Bitcoin’s growth potential—halving cycles.
Every four years, the amount of bitcoin rewarded on each transaction is cut in half; therefore, those participating in the validation of transactions on the network start to earn half as much as they had earned previously. Considering the law of supply and demand, prices should start to go up dramatically shortly after such a drastic decrease in the incoming supply. Consistent with this concept, Bitcoin has shown a substantial rise in value following each halving cycle throughout its history.
Although Bitcoin has been worth thousands of dollars for a large portion of its existence, it was once worth less than one dollar. In the first couple of years, Bitcoin’s value peaked around $30 before the first halving in 2012. This halving brought about the first exponential growth period, in which Bitcoin’s value surpassed $1000. After the second halving that occurred in 2016, its worth reached $20,000. Finally, the most recent halving resulted in a record high of nearly $68,789.
Regardless of this recent all-time high, Bitcoin’s value has tanked throughout this past year. Naturally, the economy has played a factor in the extremity of this sharp decline. To many new market investors, the drop in value came as a surprise; however, the reverse in price should not have been so unexpected considering the pattern of the halving cycles. If history is any indication of Bitcoin’s trajectory, its value has potential to grow similarly following the next halving, which is projected to occur in early 2024.
The components of Bitcoin mentioned above provide reason to believe that it may be a worthwhile investment. Recognizing the fixed supply and recurring halving cycles, it is safe to conclude that Bitcoin’s value could continue to increase over time, assuming the network remains secure. Even with the validity of these arguments, however, Bitcoin remains a highly volatile and risky investment. As with any monetary decision, it is best to be prayerful and seek wisdom from trusted financial professionals on this investment option. If properly researched and understood, Bitcoin could be a good option to consider as a portion of a holistic financial plan.