Bitcoin, the cryptocurrency that was invented by Satoshi Nakamoto in 2019, has defied odds since its early days. The currency has been beaten-down by traditional financial experts, including Warren Buffett, who is fondly known as the best investor of our time. Other respected people like Nouriel Roubini and Paul Krugman have rubbished the idea of the currency.
However, the results have worked against them. The price of BTC has risen by almost a million percent compared to the meagre returns of the main indices. In this article, I will look at five reasons to buy Bitcoin in 2020.
Buy Bitcoin Because of its Historical Performance
There is a common phrase you will find in all investment companies. They all say that historical performance is not always an indicator of future performance. This is correct. It is usually impossible to predict the performance of any asset because of how good it performed in the past. However, the reality is that it is usually better to invest in something that has performed better in the past than one that has been an underperformer.
A good example is when you are looking for an investment manager. You would obviously select one who has a proven historical track record compared to one who has a meagre performance. The thinking is that the former manager has better chances of doing well.
The same is true when you look at Bitcoin. Sure, it has had its low moments, but the reality is that it has been a better performer when you look at the longer chart as shown above.
Buy Bitcoin Because of Halving
What is halving? This is a common asked question today because it will likely be a key theme in 2020. Halving is a process where the block awards are reduced by half. The implication is that Bitcoins that are produced after a halving will reduce into half. The last Bitcoin halving event took place in 2016 and the price soared in 2017. This is one of the best reasons to Buy Bitcoin in 2020.
As with everything else, the price tends to rise when the supply is reduced. The same will likely happen to Bitcoin in 2020.
A good example of this is what happened to Litecoin, which went through halving last year. As seen on the chart below, the price of Litecoin moved from a low of $30 to a high of $140 before and shortly after the halving event. Therefore, there is a likelihood that the same will happen for BTC.
Bitcoin Adoption is Rising
Another reason why you should consider buying Bitcoin in 2020 is that BTC is going mainstream. Sure, Bitcoin will not replace cash but the reality is that it will always have a special place in the economy. Bitcoin will always be like gold, which does not have a real use other than investment. Recent data show that Bitcoin adoption is rising. In addition, some large companies like Starbucks, Nordstrom, and Wholefoods have started to accept Bitcoin. Therefore, we have a situation where Bitcoin supply is easing as demand rises.
A good example of this adoption is the performance of Square’s Bitcoin business. Square is the fintech company that was started by Jack Dorsey, the CEO of Twitter. While the company has struggled, its Bitcoin business has soared.
In 2019, the Federal Reserve made three rate cuts. The implication of rate cuts is that more money continued to flow in the economy. In fact, the Fed saw a sharp increase of its balance sheet. At the same time, low rates mean that traditional safe assets like bonds are seeing minimal returns. As a result, investors will likely – as they always do – move to look for yield in risky assets. Bitcoin is a risky asset but one that promises high returns. The Fed has said that it will likely leave rates unchanged this year. Therefore, there is a likelihood that many investors will put some of their holdings to Bitcoin.
Bitcoin Technical Reasons
Finally, Bitcoin could soar this year because of technical factors. All tradable assets usually react to these technical factors. As such, looking at Bitcoin on the five-year chart shows that the price is at a critical point. First, the blue lines below show that Bitcoin is nearing a tip of the symmetrical and ascending triangle. The price tends to breakout when it reaches the tip of the triangle pattern. Looking at the chart below, it shows that there is more consolidation in the upper side of the triangle. As such, there is higher chances that the price will rise.
Another thing. The chart below shows that the price reached a 38.2% Fibonacci Retracement level and then made a recovery. It is now trading at the 23.6% Fibonacci level. This means that the currency could continue rising.
Buy Bitcoin in 2020: Summary
We believe that Bitcoin will have a good year in 2020. Most of these gains will likely happen before June, when halving will take place. At the same time, we believe that investors should only have a small portion of their investments in the currency. This is because Bitcoin tends to go through sharp spikes. We recommend a situation where you invest 10% of your assets in Bitcoin and the rest in other assets like stocks.
Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.