Does Bitcoin have the growth potential it had in its early days?

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by Juan Ignacio Koch *

A few years ago the word Bitcoin It was known only to a small niche of computer scientists and enthusiasts of new technologies. Today, the most important cryptocurrency in the world is famous in all sectors, no matter how far away they are from finance or computers.

This radical change, explained by its generalization, is largely related to it Ability to generate millionaires in a relatively short period of time if we compare it with other traditional markets. But many investors and savers are wondering if this could happen in the future.

Bitcoin is currently the most popular cryptocurrency in the world. Source: Pexel.

a fantastic start

Bitcoin was developed by Satoshi Nakamoto in 2008, a person or group of people whose identity is still unknown, and with it the concept of blockchain, the technology that allows you to have a secure, private and transparent digital currency.

Since mid-2010, the year in which the first trades were registered, to date the share price has increased by more than 29,202,000%, This means that bitcoin jumped from $ 0.05 to over $ 19,800 and even hit an all-time high of $ 69,000 in November 2021.

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To get an idea of ​​what this swing means, just look at how the major global stock indices have behaved: the S&P 500, the leading stock index in the US stock market, is up 247%; the Nasdaq 100, which focuses on technology companies, rose by 530%; while the Dow Jones, the oldest and most stable index, is only 196%.

The diversification of the index means that returns are average, but if we look at the cases of blue chip companies that have made the most progress over the same period, we will find some surprising differences. For instance, Tesla stock was up by 17,400% and Apple stock by 1,756%. around.

Bitcoin’s volatility has pushed its price up. Source: Pexel.

So far we have talked about risky investments in the stock market, but when it comes to more stable assets, the numbers seem almost meaningless. To name just two examples, the price of gold has risen 100% since 2008 and the price of oil has risen nearly 180% since 2009, when it bottomed out after the 2008 housing crisis.

When we take the longtime photo, there was no competitor for bitcoin and this growth made cryptocurrency adoption massive, its market capitalization skyrocketed. Today it totals $ 377.5 billion, which makes it larger than ExxonMobil, Procter & Gamble, Walmart, and JP Morgan, among other giants.

Even more surprisingly, its market value in November 2021, when it hit its all-time high, was about $ 1.3 trillion, larger than Amazon’s current size and close to Google’s.

Those who have been able to recognize their growth potential from the outset and have decided to invest, even if it is only a small part of their capital, he could have become a new millionaire after a decade.

Bitcoin’s popularity has spread around the world due to its ability to create millionaires. Source: Pexel.

The consolidation phase

Although no one knows exactly what will happen in the future, It is possible to make predictions based on the potential of this emerging technology And the past that I went through

When an asset goes through a violent bull run in the markets and grows almost exponentially due to violent demand, its prices subsequently normalize within a certain range and explosive increases become increasingly rare and substantial.

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Despite his short and intense life Bitcoin seems to be getting closer and closer to this consolidation phase. In its first major bull run, which took place from August 2010 to June 2011, the rise reached 99,300%.

After a worrying 93% correction from those highs, the price climbed from October 2011 to November 2013, but this time by 61,000%. The retracement after this move was 87% until the new bullish process that started in August 2015 and ended in December 2017 was 12.125%.

The latest bearish cycle ended with an 84% decline that ended in December 2018, and since then the cryptocurrency has returned to an all-time high of $ 69,000 in November 2021, a 2% change. 100%.

Bitcoin gradually consolidated in the market and lost its growth potential. Source: Pexel.

till now, each positive cycle had a lower intensity than the previous one, despite the growing demand and the asset being widely adopted around the world.

Major market players have also been involved in the crypto ecosystem, such as Michael Saylor, CEO of MicroStrategy, or Elon Musk himself, who added bitcoin to his asset structure via Tesla.

Institutionalization by large investment banks is also a key factor in understanding their evolution, as derivatives and exchange-traded funds can trade on Bitcoin in traditional markets. The last link in this process is perhaps the incorporation as a stable currency in economies such as El Salvador or the Central African Republic.

for these reasons, we could see the final phase of consolidation, where volatility is reduced and bitcoin becomes a value that will cease to be a growing stock.

Many Bitcoin investors already see it as the new digital gold. Source: Pexel.

The new digital gold

If bitcoin finally makes progress in this period of consolidation and investors validate its new low volatility state and report nothing abnormal, then The popular cryptocurrency could become the new digital gold.

Unlike other traditional currencies such as the dollar or the euro, bitcoin cannot be permanently spent due to its origin code. only allows a circulation of 21 million units, Limited supply no longer eliminates inflationary pressures, so shortages inevitably mean that the price will rise as demand increases.

For this reason, Bitcoin is said to be the ultimate safe haven equivalent, as it will be able to withstand volatility when markets are filled with fear and uncertainty, as is usually the case during major crises.

Since it is a decentralized good that does not depend on any government or monetary entity, political conflicts and their consequences will not be able to influence it, which will strengthen its quality as a sanctuary of values.

But there is still a long way to go, as its correlation with equity markets has increased exponentially in recent years. Between 2020 and 2022, the correlation with the Nasdaq 100 index rose to values ​​around 0.7. Remember that a correlation of 1 means that two assets or groups of assets are moving in unison, while a number of -1 indicates the exact opposite movement.

The trend tells us that although we are at an early stage, This digital asset is perhaps one of the most chosen havens by investors and savers. and it is not good to speculate in the short term as is the case today.

The current trend could predict that Bitcoin will be a solid haven of value. Source: Pexel.

Looking for the next bitcoin

Knowing that the world’s leading cryptocurrency is unlikely to grow as fast as it once was, investors are looking for the next bitcoin for a serious upside.

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For the moment, There are tens of thousands of crypto projects that have their own tokens. In fact there are too many. The crowds are such that it is next to impossible for a retail investor to analyze project by project to find the right one without an action plan.

This is why they have to Filter options deepen those with the greatest potential Evaluation of these four main points:

First, you need to know the market cap of each cryptocurrency. If it is very large, the asset will certainly not have the potential we are looking for. This is also the case when it is very low, because the risk can be extremely high, to the point where its return would not be enough to compensate.

It is important to know the development team behind each project. Who is in charge, what experience they have and how committed they are to the idea are all questions investors need to ask themselves before investing their money for the long term.

If the management and development team is not strong, we could be faced with a project that simply aims to make short-term profits and then abandon it, which ends up hurting the investor who aims for considerable appreciation over the years.

It is important to analyze the projects behind cryptocurrencies to find value. Source: Pexel.

If we want to invest in a project that catches our attention, we need to carefully read the white paper to determine the quality of the project. This document lays down the foundations of the origin and management of its economy.

This task requires a number of specific skills, Not all investors will therefore be able to take advantage of it, but this is precisely where the key to project success lies.

It is very difficult for a cryptocurrency to grow and generate value year after year or decade after decade if it is not supported by a large community of thousands or millions of individuals and organizations who are betting on the project and talking about it constantly.

At this point, it is important to recognize the quality of the community, because sometimes a few well-educated, serious and dedicated participants are better than a few people who are content to follow trends.

In recent years, Bitcoin has grown almost exponentially, becoming a reference asset for the entire sector and a real money-making machine. However, it gradually consolidated to become a less volatile and more reliable asset.

It is believed that it could be a good substitute for gold for years to come, as its global distribution and scarcity make it the quintessential safe haven. Consequentially, If you want to meet the next bitcoin, you need to analyze new projects until you find one that has nearly the same growth potential.

However, more than that, investors need to have a lot of patience and manage risk properly because there will be volatility and a lot in the middle of this road to success, so you don’t have to lose your head and add a sensible strategy. depending on the market.

* Investment Analyst at Inversor Global.

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