Finance: Investing in Bitcoin in 2021 - YouTube

Hello everyone so today i'll be talking about  bitcoin, now this video follows my first video  

that i've made about bitcoin which i uploaded  to my channel on the 22nd November 2020 that  

time it was in anticipation of bitcoin reaching  its previous 2017 high of the USD 20 000 level  

which it managed to do so on the 17th of December  2020 and within the first two weeks of January  

2021 it has created a new all-time high of  close to the USD 40 000 level. So if you're  

new to investing in bitcoin and would like to  understand more about bitcoin you can check out  

my first video first which i have linked to in  the description section below. In that video I  

briefly mentioned bitcoin how it is created how  it works and why investors would want to invest  

in bitcoin so you can check out the video first  before continuing with the rest of this video.  

a couple of things have transpired since I  uploaded my first video so let me start this video  

by looking at a few key events that have  affected the prices of bitcoin. Let's go!

The first chart shows the performance  of bitcoin over the long term  

since its inception in 2009  until the 15th of january 2021,  

so you can see that the price of bitcoin is  on an upward trajectory over the long term.  

The second chart of bitcoin shows the  performance over the near term, we can see from  

the price in June 2020 it has moved upwards until  a high reached in January 2021, the blue line is  

the price of bitcoin while the green line is  the 20-day moving average of bitcoin's price  

so we saw that a few days ago bitcoin price has  dipped to a point where it is close to the 20-day  

moving average before rebounding again and moving  further away from the 20-day moving average.  

On 17 december 2017 bitcoin hit a multi-year high  when it traded close to the 20 000 US dollars  

level. However a few days later on december 22nd  bitcoin fell below 11 000 a fall of about 45  

percent from its 2017 peak, and within a few  months going into 2018 it lost 80% in value.  

Looking at more recent times, in mid february 2020  before the global Covid 19 outbreak bitcoin had  

been trading near the 10 000 level then, as the  virus affected global markets investors panicked  

and gravitated towards the safety of cash as  a risk-free asset causing the price of bitcoin  

to drop to as low as 3850 us dollars in March  2020. It did rebound slightly by the closing  

of US markets during the period but overall  bitcoin has lost about 50% in value in one day  

while other cryptocurrencies like ethereum also  recorded close to 40% loss during that period.  

Eventually bitcoin recovered in the second half  of 2020, bitcoin started a bull run due to strong  

investor demand from large funds and companies.  Data firm Chainanalysis reported that investors  

who bought at least 1000 bitcoins and have had  an account open for less than a year were the  

ones that have been driving the significant  demand for bitcoin since September 2020.  

Then just last month on 17 December 2020, bitcoin  managed to record a new high when it breached the  

2017 high of around 20 thousand dollars level it  reached a high of 22805 US dollars, this happened  

after the Federal Open Market Committee (which is  a committee within the US Federal Reserve system)  

issued a statement that it commits to  continue carrying out its bond buying program  

whereby it will purchase 120 billion US dollars  worth of bonds from the open market every month  

in order to keep the federal funds rate  within the targeted range of zero percent  

to 0.25 percent, because of this statement more  institutional funds have started increasing  

their investment in bitcoin in the hopes that  a limited supply of bitcoin can help to protect  

their portfolios against inflation. Within  less than a month entering 2021, bitcoin has  

gained by more than a hundred percent when  it searched above the 40000 US dollars  

level creating a new all-time high of 41962 US  dollars price level on the 7th of january 2021.  

The market cap for the entire cryptocurrency  sector topped one trillion us dollars on that day  

for those lucky investors that bought bitcoin  during the march 2020 lows they would have  

made almost a thousand percent in gains if  they hold bitcoin until that point in time.  

A few days after the new all-time high is reached  on 11 january 2021, quite similar to what happened  

when the 2017 peak was reached, bitcoin reversed  direction and fell by more than 20 percent  

within one to two days to trade around the  30 000 us dollars level. It even reached  

an intraday of just above the 30 000 level  temporarily, halting an unprecedented rally.  

This occurs as a rise in long-term US treasuries  lifted the value of the US dollar and caused  

money to flow out of alternative assets like  bitcoin. On the same day the UK financial conduct  

authority also warned investors against lending or  investing in crypto assets saying that they should  

be prepared to lose all their money as there is  significant price volatility and it can be hard  

to value crypto assets reliably. However within  the next few days bitcoin has seen a rebound in  

its price and is trading close to the usd 40 000  level again. So what should be the fair value of  

bitcoin? For stocks, stock prices are derived  based on the cash flows and earnings potential  

of businesses that own assets that can  be deployed in business operations.  

And for gold it can be made into jewelry or  it can be used in industrial applications.  

But bitcoin is just digital currency sitting  in virtual wallets with nothing backing it up.  

So yes bitcoin has no intrinsic value, its  value is just dependent on how valuable the  

market perceives it to be as a store of value  and a medium of exchange, so it is completely  

dependent on the laws of demand and supply.  First let us look at the supply of bitcoin,  

the creation of new bitcoins is halved every  four years until ultimately there will only  

be a maximum amount of 21 million bitcoins  in circulation with the last bitcoin being  

mined in the year 2140. So the limited supply of  bitcoin it helps to protect against inflation,  

this is in contrast to your fiat currency or your  paper money which can be printed in unlimited  

amounts at the central bank's discretion when it  chooses to pursue an expansionary monetary policy.  

The act of printing new money leads to  an increase in the supply of money and if  

this growth in money supply exists the growth in  the production of goods and services then there  

will be inflation which reduces the value of your  currency. So because of bitcoin's scarcity it has  

drove institutional investors to put their money  into bitcoin to shield their portfolios against  

the effects of inflation. The strong surge in  the price of bitcoin toward the end of 2020 has  

also triggered the fear of missing out whereby  more investors pile their money into bitcoin  

with the hopes that they can still write on the  bullish bitcoin wave and make quick money. So  

with google trends data it has showed that global  search interest for bitcoin has more than tripled  

from early october 2020 to early january  2021, indicating that there is strong retail  

interest in bitcoin. Other than the strong market  demand we can also look at how market liquidity  

influences the price of bitcoin. On 2nd january  2021 Glassnode researchers stated in an article  

that there are approximately 18.58 million  bitcoins in circulation but 78% of it is  

classified as illiquid and barely accessible,  so only the remaining 22% which is about 4.5  

million bitcoins are available to be traded  on cryptocurrency exchanges. The researchers  

stated that over the course of 2020, a total of  additional 1 million bitcoins have become illiquid  

as investors are increasingly hodling bitcoin  instead of wanting to trade it on exchanges,  

so this thin market liquidity coupled with strong  demand have been powerful factors in driving up  

the price of bitcoin towards the end of 2020.  Another factor that would determine the value  

of bitcoin would be the relative returns of other  assets compared to bitcoin. When investors decide  

whether they want to invest in a particular asset  class or not they will look at both reward and  

risk, so if they take two asset classes together  and you see that one has a higher reward to risk  

measure compared to the other then they would  invest in the former one. Let's take an example:  

bitcoin and US treasury bonds. If US treasury  bonds their returns rise to a point which makes  

them more favorable than bitcoin then people will  move their money from bitcoin to US treasuries,  

yes US treasuries they have low yields, only  single digit returns in a year compared to  

bitcoin which can give you triple digit percentage  gains, however US treasuries have lower volatility  

so if you look at a reward to risk ratio then US  treasuries may just have a better reward to risk  

ratio compared to bitcoin as long as the returns  on the US treasuries rise to a point enough to  

justify it as a better asset class. So this was  what happened on 11 January 2021 when there had  

been a rise in US treasury yields to a point that  it makes US treasuries more attractive compared  

to bitcoin as an asset class, and this has caused  the price of bitcoin to fall as a result. Bitcoin  

has gotten the seal of approval from several fund  managers. On the 8th of january 2021, investor  

Bill Miller said that he expects that the price of  bitcoin can surge between 50% to 100% within the  

next 12 to 18 months as investors increasingly add  bitcoins into their portfolio to shield against  

inflation. Well at the point of time in january,  bitcoin is trading around forty thousand us  

dollars per bitcoin so a hundred percent gain  would be around the eighty thousand dollars level.  

Bill has also added that he is not sure when will  the price of bitcoin correct but if investors are  

not ready to stomach another 80% correction  like what happened during the 2017 crash  

then investors should not consider bitcoin  as an asset. Another investor Mike Novogratz  

formerly of the firm fortress investment group has  stated that bitcoin is now an institutional asset  

but the good thing is that a lot of institutions  are still not invested in bitcoin yet so 2021  

could be better if not at least as good as 2020  for bitcoin. Stan Druckenmiller has also said that  

he has invested in bitcoin in 2020, this comes  after he previously stated in 2019 that he was not  

interested in investing in bitcoin so for him  to change his views within a year i would think  

that he has given some thought about this. On  the 5th of january 2021, JPMorgan strategists  

have also stated that bitcoin can be seen  as a rival to gold and it could hit a price  

of 146000 US dollars in the long term if bitcoin  manages to establish itself as a safe haven asset  

similar to digital gold. Apart from the positive  commentaries from the finance community, bitcoin  

has also emerged as the reserve asset. According  to the website bitcointreasuries.org, the bitcoin  

treasury's list expanded rapidly in 2020 with  29 companies holding 1.1 million bitcoins  

as their reserves. The trend started to kick off  when the business intelligence firm Microstrategy  

purchased 425 million dollars worth of bitcoin in  august and september 2020, its CEO Michael Saylor  

said that bitcoin can be better than gold  and its ability to shield against inflation  

has been the contributing factor to the firm's  decision to invest in bitcoin. Following that,  

payments company Square also invested 15 million  dollars in bitcoin in october 2020. Paypal has  

also entered the cryptocurrency market when it  announced on the 21st of october 2020 that it  

will be allowing its users to buy home and sell  cryptocurrencies via its platform, this has led  

a huge spike in the price of bitcoin because  there is a huge volume of Paypal users globally.  

Apart from companies in the private sector, the  use of bitcoin as a reserve asset has also just  

started to influence government agencies,  with the mayor of Miami Francis Suarez  

saying that he is exploring to put a percentage  of the city's reserves in bitcoin as treasury  

reserves, stating that bitcoin has been a stable  investment in an incredibly unstable year.

There are a number of financial analysts that are  worried that the current bitcoin bull market is  

just a bubble waiting to burst. Michael Harnett,  chief investment strategist at Bank of America  

Securities said that bitcoin blows the doors of  prior bubbles, he compared the current bitcoin  

booming market to other asset markets that have  been booming in the past before they crashed,  

such examples include Thailand's stock market  in the mid 1990s, the dot-com bubble in the  

late 1990s as well as the housing bubble in the  mid 2000s before the global financial crisis.  

All of these markets they registered triple digit  percentage gains before they came crashing down  

while bitcoin has already registered  close to a thousand percent in gains.

another thing that could pose  a threat to the continued rise in the price of  

bitcoin would be increasingly stringent regulatory  requirements. There have been significant pressure  

from the US department of treasury as well as  UK Financial Conduct Authority when it comes  

to the regulation of bitcoin. If anti-money  laundering regulations and know your client  

requirements become more strict in various  jurisdictions across the world then this would  

significantly impact bitcoin's use as a medium  of exchange and thus negatively impact its value.  

Should there be a crash in the bitcoin market if  it happens some are saying that it will probably  

not be as bad as what happened during 2017.  this is because of the differences in the nature  

in the drivers of the 2017 rally and the  2020 rally. During 2017 the bitcoin bull market was  

driven by retail investors that are speculating  on bitcoin and other smaller cryptocurrencies  

so the bull run was due to pure speculative mania  while in 2020 the bull run had been driven by  

institutional funds and large companies  looking to use bitcoin as a hedge against  

economic uncertainty and inflation, so due to  the recently stronger institutional backing  

the degree of a market crash if any is  expected to not be as bad as in 2017.  

Also referring to the recent plunge on 11 january  2021, according to coindesk.com, bitcoin whales, 

which are large investors of bitcoin  holding at least 1000 bitcoins,  

they are actually buying during the dip on  11 january 2021, and this is reflected in the  

number of bitcoin whale entities recording a new high of 2140 on 11 January itself. This  

indicates that a lot of investors still have  confidence in the ongoing bitcoin bull market.  

So are you a bitcoin bull or a bitcoin  bear? Are you looking to buy bitcoin , 

hold on to your current bitcoin coins or sell  and take profit? Let me know what are your thoughts in  

the comments section below and if you have learned  anything from this video you enjoy it, please click  

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And that's about it for now i will see you  in my next video take care and stay safe