Bitcoin: An Emergent Long-Term Store of Value

Bitcoin Long Term Store of Value - Sarson Funds

A significant number of cryptocurrency investors view Bitcoin as both a long-term store of value as well as a digital currency – a view supported when taking long-term charts and patterns into consideration. While short and medium term volatility have become hallmarks of Bitcoin and other cryptocurrencies, investment managers can utilize cryptocurrencies to deliver non-correlated asset exposure to their clients’ portfolios.

One pattern of note to many investors is the so-called “golden cross.” A golden cross is a bullish candlestick indicator marked by a relatively short-term moving average crossing above a long-term moving average. Longer term patterns typically carry more weight, and thus a golden cross can indicate an emergent bull market which is reinforced by high trading volumes. Bitcoin, like other investable assets, is no stranger to trading pattern indicators which could present a golden cross scenario. In fact, Bitcoin has seen this scenario on more than one occasion. 

In July 2019, Bitcoin reported its first golden cross since February 2016, which was six months before its last halving. The 2016 golden cross led to a Bitcoin bull-run and an all-time high of $20,083 in December 2017. Just recently in December 2019, another golden cross was reported on the weekly average price chart – signaling a potential upcoming bull run for Bitcoin. Taken into account along with, Bitcoin’s anticipated halving in May 2020, many cryptocurrency investors are hopeful for an exponential rise in price for Bitcoin this year.

With long term charts looking bullish, Tim Draper of venture capital firm Draper Associates predicts in a Forbes article that, “We’re two years away from everyone using Bitcoin.” As international currencies like Argentina, China, and the U.S. have recently lost value due to international tensions and internal corruption, this prediction does not seem too far off.

Beyond individual technical trade patterns, a second way to view Bitcoin as a long term store of value is in comparing its growth chart to other established stores of value. Gold is a commonly referenced comparison. When long term indicators are taken into account, gold experienced its own share of early volatility before maturing to deliver price stability followed by acceptance and trust as a store of value asset.

Matt Hougan, a cryptocurrency and blockchain writer for Forbes, argues that any store of value rapidly appreciates initially and slows over time, including gold (source article). Looking at these longer term patterns, high volatility at the onset is a consistent characteristic of new currencies – with mature stabilization occurring over time. When looking at it from this macro point of view, Bitcoin is still in its infancy. Slowly but surely, Bitcoin seems well on its way to becoming digital gold, not just as a currency, but also a true long term store of value.

The 2010s Belonged to Bitcoin: So What’s in Store for the 2020s?

Bitcoin: Asset of the Decade

Bitcoin pessimism seemed in vogue at the end of 2019, as the largest cryptocurrency tumbled 30% from September 2 to December 31. However, at decade’s end, one thing is clear: The 2010s belonged to Bitcoin.

Bitcoin volatility deterred some investors, with alternating spikes and plummets of hundreds and even thousands of dollars within only a few hours. However, these types of price movements can be considered a maturation stage for emerging stores of value (see this Forbes article outlaying the Bitcoin-Gold comparison).

It’s helpful look past the day to day volatility to see the true success that Bitcoin has had in the last year and decade.

In January 2019, Sarson Funds’ John Sarson called bottom for the crypto winter as Bitcoin hovered around $3,600. Bitcoin finished the year strong, with a return on the year of nearly 100%, making it the highest returning investment of 2019, far beating the 31% return of tech stocks for the year.

While Bitcoin’s returns are impressive for 2019, however, they are minuscule when considering Bitcoin’s overall ROI.

Over the past decade, Bitcoin returned 8,900,000%. That’s right, if you invested 1 dollar in Bitcoin in 2010, you would have roughly $89,000 in your pocket right now. If that hasn’t caught your attention, why should you invest? Bitcoin is still in its infancy.

Looking forward, 2020 holds vast potential for Bitcoin. On May 13th 2020 is Bitcoin’s next scheduled halving. The halving of a coin is particularly important for price changes of a crypto (What is halving? Read about it in a Sarson Funds article here).

In short, a cryptocurrency halving event is when the mining rewards are cut in half, therefore decreasing the rate that the supply increases, making the coin more scarce. The halving of Bitcoin in 2020 is important because its last halving in 2016 began the historic bull run that put demand for Bitcoin at its all-time high of $20,089 in December 2017.

While it’s impossible to predict the halving’s effect on Bitcoin’s price, what is known is that 2020 will provide Bitcoin with a plenty of factors that could highly impact its price range in the coming years.

Based on what was seen after 2016, Sarson Funds is hopeful.