Can Bitcoin become a Long-Term Saving Product?
Under the spotlight because of its strong fluctuations, Bitcoin intrigues. But investing in this cryptocurrency should be considered in the long term. The analysis of Pierre Noizat, president and founder of the exchange platform Paymium.
Despite a strong correction movement between April and July, the price of bitcoin has increased more than twofold in one year from July 2020 to July 2021. Meanwhile, a cryptocurrency exchange platform was valued higher than BNP Paribas when it went public.
Often mislabeled as a “speculative” investment, the first of the cryptocurrencies is actually similar to a long term savings product. The investment horizon indeed plays a determining role in the notion of investment but also of volatility, which, statistically, decreases with time if the asset in question is part of a long term trend.
The real question is to know how to define one’s savings project, between a regulated savings account, which is liquid but yields practically nothing, and an investment medium such as bitcoin, which has a high potential return if it is held over time.
In this case, since the beginning of bitcoin mixer transactions in 2010 until today, an investor who has kept his bitcoins for at least three years (thirty-seven months to be exact), has always recorded a positive performance despite the ups and downs! And that’s knowing that over the period, the price of bitcoin has risen by an average of 300% per year!
Of course, past performance does not prejudge future performance, but, the history of a stock remains the only factual, promise-free element that analysts have to back up their predictions, whether in the equity markets or in cryptocurrencies.
How about Diversification?
Bitcoin is finding its way into individual savings and corporate cash reserves. A growing number of institutional investors have invested part of their cash in bitcoins for this medium-term purpose. French groups have also invested very large amounts.
The market is still in a phase of discovering the price of this cryptocurrency. Like all emerging technology stocks, the Bitcoin network carries a degree of risk, but the likelihood of its value falling to zero, as central bankers have been claiming for years, is almost zero. If the measures taken by China — refusing to supply electricity to the “miners” of the blockchain — have also made headlines, they should above all lead these operators to look elsewhere for electricity at a lower price.
In fact, there is no example of the “disappearance” of a peer-to-peer network with a critical mass of users (100 million worldwide to date, growing steadily over the past ten years).
However, the value of bitcoin often raises questions and fuels many preconceived ideas. The value of bitcoin is often questioned and is the source of many preconceived ideas, such as the idea that it is not based on anything, especially because there is no tangible asset or counterparty associated with it. This is, however, a rather quick shortcut. Like Amazon and its IT and logistics infrastructure, the fundamentals of this cryptocurrency are not always visible to the general public.
As an international payment network
Bitcoin derives its value from the fact that it is a right to use the Bitcoin network, a secure, censorship-resistant, 24/7 global payment network. Unlike a stock, it is not a property right in this infrastructure because, being decentralized, it is in practice impossible to take control of it, as evidenced by its resistance to all forms of attack for the past ten years.
The demand for the rights to use this infrastructure, i.e. for Bitcoins, the quantity of which is limited to a maximum of 21 million units, is growing with the adoption of the network by more and more users, year after year.
The arrival of younger generations of investors is combining with technological advances to accelerate the increase in its value: Bitcoin Core, the software that runs the network, is upgraded every two months on average, improving its performance and resilience.
Store of Value
The uses of the Bitcoin blockchain today focus on two functions: one as a store of value and the other as a means of payment. Use as a store of value today requires, based on price history, holding Bitcoins for at least three years to smooth out the bumps in the purchase price expressed in euros or dollars. This volatility in the bitcoin/euro market is inherent in the process of “price discovery” by an imperfect market.