The prediction that Bitcoin will go to $100,000 within 24 months isn’t mine, but it may come true. Let’s cover three reasons why:
- Bitcoin is useful. It has real value in the marketplace, but it’s hard for Americans to see it right away. A closer look is required.
- Bitcoin is dependable. Due to a technological breakthrough, it can’t be “turned off” by anyone. (Even its anonymous creator).
- Bitcoin is predictable. Bitcoin is unlike any other financial asset or instrument and that makes it extremely predictable if you know what to look for.
Bitcoin is Useful
If you’re an American reading this, let’s remember that we are less than 4% of the world’s population. Bitcoin isn’t solving a problem that is particularly American. In fact, it’s solving a problem that is largely non-American.
For example, many Chinese want to get money out of China and the government makes it very hard. Bitcoin makes it easy. Countries like Venezuela have such a bad currency crisis that Bitcoin is literally saving lives.
Most of the world’s population, compared to the U.S., has a government that is far more likely to destroy its currency or even turn off the bank accounts of citizens who disagree with prevailing political opinion.
It’s estimated that 1.7 billion humans can’t even get a bank account. It’s a structural problem.
Bitcoin is a solution that can be used by anyone with access to the internet, whether their government allows it or not. Just like the internet itself cannot be turned off, the Bitcoin network runs itself automatically and cannot be turned off. This is very useful to many people, especially those outside the United States.
The proof is in the
pudding transaction volume. Bitcoin processed more transactions than Paypal in each of the past two years.
Bitcoin is Dependable
Bitcoin is a true technological breakthrough. It is built on top of the technology that has been securing our nuclear weapons for over 50 years: cryptography.
In 1983 the first cryptocurrency was introduced, ecash. But there were problems. Throughout the 80’s and 90s, more attempts were made to create a cryptocurrency, but those had problems too.
Bitcoin actually solved a computer science problem that cryptographers had been working on for decades. As a result, an “unbreakable” network emerged. There was skepticism that it was truly unbreakable, but time would tell.
Over 10 years later, it’s becoming clear that Bitcoin may be the most dependable financial network ever. It’s designed in a way that uses game theory to secure the network and keep it running, no matter who would want to squash it.
Bitcoin is Predictable
Bitcoin can be considered a commodity, like gold. As such, its price is determined by supply and demand.
Increased demand yields increased price. Decreased demand yields decreased price.
Increased supply scarcity yields increased price. Decreased supply scarcity yields decreased price.
Unlike any other commodity or money, Bitcoin’s supply scarcity is precisely known. What’s more, Bitcoins future supply scarcity is precisely known as well.
If you assume stable demand, this means Bitcoin’s price is highly predictable because Bitcoins supply scarcity is precisely known.
Compare this to gold or oil, which get their scarcity from nature. We don’t know exactly how much gold or oil are left in the ground. We don’t know exactly how much gold or oil are above ground, although we have estimates.
Bitcoin runs on an open-source computer program that literally spells out the schedule of its supply scarcity. Like refined oil or gold, there is an above ground “stock” and newly mined “flow” which represents inflation. Unlike refined oil or gold, the stock (supply) is precisely known and published in a public ledger that can’t be faked or altered.
And unlike refined oil or gold or anything we’ve ever known, the future flow is precisely known because it follows its unchangeable programming. This does something groundbreaking… it makes Bitcoin’s stock-to-flow ratio—a measure of supply scarcity—precisely known.
The stock to flow ratio measures the supply scarcity. The higher the ratio, the higher the Bitcoin price. In early 2019, a quantitative analyst published a pricing model based on Bitcoin’s stock to flow ratio. Everyone’s paying attention to it.
It is the most statistically significant model every published. In other words, it’s very accurate.
The Bitcoin Halving Happens May 12, 2020
The Bitcoin network was programmed to decrease its inflation rate (“flow”) every four years. This is known as the “halving.” There have been two halvings.
The first one led to a 9,052% price increase. The second one led to a 2,874% price increase. While these price increases are out of this world, the stock to flow pricing model scientifically validates them. They make sense.
The next halving, which takes place around May 12, 2020, is predicted to lead to a price increase of 1,000% or more, according to the stock to flow model.
How To Put Bitcoin In Your IRA or 401(k)
With a fully self directed retirement plan with checkbook control, you can put Bitcoin in your IRA/401(k) using three methods.
Before learning the three methods, let me point out that simply holding Bitcoin for a multi-year, long-term period has provided higher returns than the world’s best traders. Even if you were the world’s #1 trader, you probably can’t make as much profit trading Bitcoin as you can buying it and doing nothing but holding it.
Readers are encouraged to consider using the following methods for buying and holding for long term, as trading increases risk and likely reduces return.
Open an exchange account
If you have an IRA LLC, you would open this account in the name of the LLC. If you are using a Solo 401k, you would open this account in the name of the 401k trust.
Next you transfer money from your LLC/trust bank account into the newly opened exchange account in the same name. Then you simply buy Bitcoin by placing an order on the exchange’s web site or smartphone app. You don’t have to buy a whole Bitcoin. You can technically buy as little as a penny’s worth of Bitcoin, as Bitcoin is divisible down to one hundred millionth of a unit (a “Satoshi“).
Pros of an exchange account
It’s fairly straightforward. Most exchanges will open accounts in the name of an LLC or trust, including Coinbase Prime, Gemini, Bittrex and Kraken.
Cons of an exchange account
Exchanges are made for traders. A side effect of your Bitcoin being available for 24/7 transactions is that it is exposed to hackers who want to steal your Bitcoin.
Use a hardware wallet for cold storage
A second way to put Bitcoin in your IRA LLC or Solo 401(k) is to move it into “cold storage” on a hardware wallet you possess. You would do this after buying on the exchange.
Hardware wallets are small USB devices that store your Bitcoin offline, away from the reach of hackers. The most popular are Trezor and Ledger.
Pros of a hardware wallet
You’re in control. You’ve got the Bitcoin keys in your hands, literally. It’s held offline, away from easy reach of hackers.
Cons of a hardware wallet
You’re in control. If you lose the keys and don’t have a proper backup, that Bitcoin is gone and can never be recovered, even if it is worth $50 million.
Use insured cold storage
The third and safest way to hold Bitcoin is insured cold storage. This stores your Bitcoin offline, handled by professionals. Because professionals are handling the Bitcoin, affordable insurance is included to replace your Bitcoin in the event of theft or loss.
Pros of insured cold storage
Professionals are in control. You don’t have to worry about making a mistake that could cost you millions of dollars.
Cons of insured cold storage
It costs money.
In my opinion, paying money to secure an asset that has strong potential to grow 1,000% or more is a no brainer. It’s much more “expensive” to make avoidable mistakes that lose your 1,000% gains and 100% of your principal.
Conclusion and Recap
Bitcoin isn’t going away and it’s very unlikely to go to zero. Many Americans are missing the opportunity because they don’t understand its usefulness, which is apparent to millions of non-Americans.
Multiple breakthroughs are stacked onto each other in the fields of computer science, game theory, and economics. The result is an asset that has grown over 20,000,000% and still has room to grow another 1,000% – 10,000% after the May 2020 halving. Much of the technological risk is behind us.
At this point, the biggest risk is not having any Bitcoin (opportunity cost) and the second biggest risk is holding Bitcoin where it could be lost or stolen.
Thanks for reading. Let me know your comments…
How did I do explaining this complex topic?
What did you learn?
What questions would you like answered in a future post?
Jeff, I really like this article. I was surprised to see that Bitcoin transactions outnumber Paypal. That is certainly not an insignificant data point. The reasons to own Bitcoin are summed up very nicely and easy to understand. How about an article about the future of Bitcoin generating income?
Thanks Larry! Great idea on the future article. Stay tuned for info on generating income from Bitcoin!