This week, the value of bitcoin and other cryptocurrencies has plummeted with billions of dollars lost. The crash is hitting investors all over the world and the rapid declines wiped out two years of financial gains overnight.
Some attribute this to inflation, rising interest rates, and the Ukraine conflict. I believe it is a combination of things, that are mostly related to crypto things like the Terra (LUNA) collapse a month ago, the SEC investigation of Binance and its BNB coin, Coinbase’s dropping stock price and rumors of possible bankruptcy, the recent failure of Celsius, and several other things. Everything has created a perfect storm, making investors very nervous.
Bitcoin is the original cryptocurrency and it accounts for almost 45% of the market. Bitcoin’s price has plunged, losing over 65% of its value since its November 2021 high of over $69,000 for a single coin. Today that price is just over $20,000.
Though volatile, over the last decade the crypto market has shown tremendous durability, with each reset resulting in price-market capitalization growth and rapid innovation.
The amount of money invested in Bitcoin makes it difficult to think that digital currency could one day become obsolete. Over $30 billion was invested in crypto startups just last year, nearly four times the previous record of $8 billion in 2018.
Hundreds of new companies have created blockchains, the underlying ledger system on which Bitcoin is based. But many industry “experts” predict the coin’s demise. Earlier this month, 26 concerned technology experts wrote an open letter to the U.S. Congress urging “a critical, skeptical approach toward the industry.”
No one knows what the future holds, but Bitcoin still matters.
In January 2014 Marc Andreessen wrote “Why Bitcoin Matters,“ an article in the New York Times explaining the importance of Bitcoin:
“Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust.”
In his article, he outlines Bitcoin’s benefits are very low transaction fees, no credit card fraud risk, and it can be used in countries where the banking system is not well developed.
Last week at Consensus 2022, Edward Snowden talked about money and privacy and his involvement with Zcash. Out of everything that he talked about, one thing stuck with me:
“I use bitcoin to use it. In 2013, bitcoin is what I used to pay for the servers pseudonymously.”
Using Bitcoin to buy things was not always the case, but these days you can buy an awful lot of things in different ways with Bitcoin.
You can purchase goods from Amazon with Bitcoin, using a third-party service called Purse. With Purse a customer selects the item he or she wants to buy on Amazon, copies Amazon’s URL, and pastes it on Purse. Purse completes the transaction and gives customers up to a 15% discount on Amazon’s price.
Major retailers and high-end brands have also been jumping into the crypto and Web3 space. Gucci is the latest luxury brand to accept crypto payments in-store. In March, the fashion label Off-white started accepting payment with six cryptos in its stores in Paris, Milan, and London. LVMH’s luxury watch brand Hublot released a limited edition collection that could only be purchased using Bitcoin.
It’s not just where you pay with Bitcoin, but how. Both Visa and Mastercard have partnered with cryptocurrency providers to introduce crypto payment cards that convert digital currency into traditional money. Early in the year, Visa said that customers made $2.5 billion in payments with its crypto-linked cards in its fiscal first quarter of 2022.
Bitcoin can be very important for micropayments, embedded payments, and machine-to-machine transactions. It might not look that way right now, because of the high fees and slow transaction times, but as Layer2 technologies ramp up that’s going to change.
Imagine your car with its own wallet paying for its insurance, parking, tolls, and a car wash. By 2030, about 95% of new vehicles sold globally will be connected and this value pool is expected to reach $450 billion.
According to BitInfo, the average fee for a Bitcoin transaction in 2022 was around $2, making it not only expensive for purchases less than $1 but also more expensive than a credit card even for larger payments.
Some people already use bitcoin as a currency, and nearly 20% of all adults in the United States say they’re likely to make a purchase using crypto, according to a recent report by PYMNTS. But most people and businesses don’t because of its volatile nature.
Technologies like the Bitcoin Lightning Network will change both fees and times, costing only a few cents to send Bitocin and making transactions near-instantaneous.
In a bull market, everybody thinks they’re a genius.
For those that want to invest, you need to proceed with caution. This reminds me of the “Athens Stock Exchange Crash of 1999” when people with no understanding of capital markets (farmers, blue-collar workers, etc.) invested everything they owned to randomly buy stocks, borrowed money to invest, and ended up losing their shirts.
That’s exactly what happened with two friends of mine in the crypto market. Fortunately, they were not financially ruined, but they lost everything after the Terra-Luna crash. When they started investing in 2020, they invested only in altcoins, because they wanted at least triple-digit returns. Buying some altcoins along with your Bitcoin will always give you better returns than a Bitcoin-only portfolio. But, having a portfolio consisting of only new altcoins, is a sure way of losing it all when the market changes.
Keep in mind that you are likely to lose money if you’re looking for short-term gains. Start thinking about “Dollar Cost Averaging,” and stop thinking in terms of days, weeks, and months and start thinking in terms of years.
For example, buying $100 of Bitcoin every month for 3 years starting 3 years ago would have turned $3,600 into $9,783 (+171%). When you consider that we’re currently almost 70% down from Bitcoin’s all-time-high in November, that return is amazing.
Investing this way requires that you continue to buy even in a bear market, regardless of the short-term losses. The reason this works so well is that even though your investment stays the same (eg $100), you accumulate more BTC when prices drop. In this sense, dips are a great opportunity.
To everyone that thinks that crypto is dead, remember that Bitcoin is a survivor.
The metaverse may represent Bitcoin’s thriving survival. Cryptocurrency is a prominent way of payment for anything from online sports betting to Web3 game platforms like Roblox, and Bitcoin is the most common mode of exchange. Though fiat money will almost certainly continue to be accepted, companies such as Nike, Puma, Gap, and other major brands have been developing new imprints and products in the metaverse over the last six months. The rise of these worlds means that paying with altcoins will likely rise and benefit the ubiquitous Bitcoin.
Bitcoin has come a long way since its start and has a long way to go. It represents an opportunity for anonymity and legitimacy in online purchases and an alternative to nationally-manipulated money.
by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.
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