Do You Own Bitcoin?
The obstacles to mainstream bitcoin adoption
Bitcoin’s price has surged during the last few months, skyrocketing from approximately $7,000 to near $29,000 during 2020, according to CoinGecko. So far in 2021, prices have been volatile.
Recent buyers of the coin include institutions, big-name investors, and hedge funds. Chainalysis data shows a wave of purchases of over 1,000 bitcoin during the past several months. Names such as MicroStrategy, MassMutual, Paul Tudor Jones, and Square are investing large amounts in the cryptocurrency.
With a supply that is both limited and verified, 24-hour access, and no central governing party, bitcoin is considered a hedge against inflation. The currency is also considered an investment in “an increasingly digital world.”
More and more retailers are accepting bitcoin as payment, including PayPal and Square. Leading global payment provider Visa also entered the fray, launching debit cards with Coinbase and Binance, allowing users to earn crypto rewards as they spend.
Yet, despite all this, many individuals remain skeptical of the digital asset. What is keeping investors away?
Accessibility
Is accessibility an issue if you want to buy bitcoin?
In the U.S., a major site to purchase bitcoin is Coinbase. Robinhood and, more recently, PayPal also allow investors to set up a digital wallet to buy and sell cryptoassets.
However, for investors who are used to traditional brokers and financial advisors, investing a large amount of funds strictly online without a representative may not be appealing. And while many big-name investment houses are buying bitcoin for their own account, their customers are still not able to trade crypto in their personal accounts.
Awareness
As a relatively new investment class compared to stocks, bonds, or mutual funds, many individuals may not be aware of bitcoin.
A recent survey found that while 3% of American retirees owned bitcoin, 33% said they had no idea what it was. Over 55% said that while they were familiar with the digital currency, they had no interest in buying. It should be noted that in the U.S., the retiree demographic has the highest net worth.
Statistics in other regions also point to the majority of the population not owning cryptocurrencies.
Perception
While many people don’t know much about bitcoin, some are familiar with the digital asset but believe it is used for illicit activities.
Despite utilizing a blockchain platform that allows complete transparency, bitcoin still suffers from negativity about its involvement in criminal activities dating back to the Silk Road, which was a haven for drug and weapons pushers.
However, by using blockchain analysis, authorities have the ability to catch cybercriminals in less time than traditional methods. In the July 2020 Twitter scandal, the handles of several prominent figures were hacked to promote a bitcoin scam, and the criminals were caught in just two weeks. Recent data actually shows that just 1.1% of crypto transactions are used for illegal transactions.
Tribalism
There is a deep divide in the crypto community. With more than 5,000 altcoins in existence, each faction is fighting for dominance, engaging in social media altercations with an agenda to divide and conquer.
Each coin has a loyal following. Competing ideologies drove considerable interest away from bitcoin in 2017 and toward ether and other altcoins. This infighting led to the creation of bitcoin cash, which caused a further divide between holders of the original bitcoin and this newly created altcoin.
Volatility
Investing involves risk; investing in bitcoin involves higher risks than traditional asset classes. With higher volatility, investors may be leery of investing in the cryptocurrency.
However, does bitcoin deserve its reputation as a risky asset? Any investment can result in the loss of principal. Bitcoin benefits from a limited supply and no national borders. According to legendary investor Bill Miller, “One of the things that’s interesting about bitcoin is that it gets less risky the higher it goes, and that’s the opposite of what happens with most stocks.”
As with any investment, dollar-cost averaging, or making purchases at regular intervals, helps lower risk levels.
Banking Blockade
While some large banking institutions are buying bitcoin for their own accounts, other lending institutions block or limit depositing crypto gains for their customers.
In early January, HSBC, the world’s sixth-largest bank as measured by total assets, joined other U.K. banks in prohibiting customers from depositing gains from crypto transactions into accounts held at the bank.
As the market capitalization of bitcoin continuing to soar (recent figures put it at over $600 billion), will the trend of banks restricting crypto deposits revert? Or will crypto banking start to pull assets away from traditional banking?
Crypto custodian Anchorage recently received conditional approval for a national trust charter from the U.S. Office of the Comptroller of the Currency, which would allow it to operate across all 50 states. And in Switzerland, considered by many to be the banking capital of the world, two crypto banks were approved to offer cryptocurrency trading and custody.
Will the recent influx of institutional buyers be the final push to get bitcoin past $100,000? Will bitcoin soon be recommended as part of an investor’s asset allocation model? With growing acceptance by the broader investment community, will bitcoin finally go mainstream?
This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in this article.
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