While Bitcoin is popular, understanding the fundamentals that drive its pricing and adoption is important.
Blockchain is a distributed ledger that records transactions between two parties in a safe and open manner. Blockchain technology has revolutionized the way transactions are processed – transactions are now decentralized, scalable, operating 24×7 without a central middleman and highly secured. Bitcoin, the first application of blockchain in the real world, acts like a payment mechanism as well as a store of value.
As an investor in this asset class, it is pertinent to understand the fundamentals that drive Bitcoin (also referred as BTC in exchanges as a ticker). This article will help you to understand the brief history as well as the potential growth that cryptocurrencies can have in the upcoming years.
Supply and trade
Bitcoin has a fixed supply of 21 million out of which 18.8 million are already in circulation. Every day, about 900 BTCs are added to the supply (via a process called mining). This reduces over time and eventually in the year 2140, all BTCs will be in circulation. However, an estimated 3 to 4 million of the 18.8 million supply is locked forever (investors have lost their access to them). Thus, BTC’s fixed supply creates an artificial scarcity that will augment its pricing in the years to come provided there is strong adoption.
However, BTC is divisible up to 8 decimals. That is, you can transact/buy even 0.00000001 BTC (this unit is called as SATS; 1 BTC equals 10^8 SATS). In India, you can buy Bitcoin for even INR 10. BTC is therefore set up for micro transactions at scale in the future.
Price and adoption
BTC is trading at $47,700 today (Oct 2, 2021) – an equivalent of INR 37 lakhs. BTC’s price, though volatile, has grown consistently year on year. If you had invested
INR 1,000 in BTC on Jan 1, 2016, it would be worth INR 1,09,791 today. On a shorter time frame of weeks or months, it is difficult to predict BTC’s price actions though as an investor with a 4 to 5 year horizon, you are likely to grow your wealth considerably with BTC.
More than 120 million users in the world have an exposure to cryptocurrencies today of which around 75 million are estimated to own some amount of BTC. This means, on average, every user owns 0.25 BTC. Analysts expect cryptocurrency adoption to grow 10x in the next 4-5 years aided by strong youth economies such as India. Therefore, the average BTC holding will likely drop to 0.025 BTC in five years. It is clearly an advantage for early adopters today to enter positions in BTC at a lower price point.
Cryptocurrency market capitalization
Bitcoin has been the leader in the world of cryptocurrencies in spite of thousands of new coins/tokens being launched over the years. In terms of market capitalization, the cryptocurrency market is just above $2 trillion today. BTC represents more than 43 per cent of the market – this metric is called Bitcoin Dominance. This metric moves in cycles in the range of 40 to 70 per cent. At the starting of this year, BTC’s dominance was around 70 per cent. In the last quarter of this year, BTC dominance is expected to increase to up to 60 per cent as investor monies flow into this asset over all other cryptocurrencies.
The cryptocurrency market capitalization is about 2 per cent of what is invested in stocks and equities globally and hence there is potential to grow at least 5x in the next few years. BTC will be the dominant and safest crypto that drives this growth story.
Safety and regulation
The Bitcoin network has been live 24×7 for the past 12 years with no outage or erroneous transaction identified ever. The system is supported by millions of interconnected computers similar to the internet and is robust with no individual person having any control over the system.
Governments have been vary of adopting Bitcoin in the past but are slowly embracing this technology as user adoption grows. Developed countries such as the US, UK, Japan and Australia have regulated investments in this asset. El Salvador, a Central American nation, has made Bitcoin as legal tender in the country with more such countries planning along these lines. India has proposed a regulation around this that may fruition by early next year.
Overall, Bitcoin is a safe asset with enormous potential to grow in the upcoming years. 2021 is still considered early for this new age technology as mainstream adoption is bound to explode along with positive regulations for the asset class around the world.
Disclaimer: This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.