Discussions in the mainstream eco-verse have shifted gears over the last year since the announcement of FASB rule changes and approval of eleven U.S. ETF products. These two items represent a fundamental shift in the use of bitcoin as an asset, mostly equated to gold but with digital use cases. Today, large banks and insurance companies have filed official SEC mandated documents of their ownership of these new bitcoin ETF products. Larger organizations are allocating time to research bitcoin, its properties, use cases and potential growth.
Given that bitcoin has been trading for over 13 years, its track record can be compared to other financial products. However, the best way to understand what bitcoin is doing for investors is to look at bitcoin vs common American investments.
The S&P 500 is the pinnacle of investment choices for long term investors because it exposes you to 500 large companies. Below is a chart of the S&P 500 denominated in bitcoins’ smallest denomination, SATS. 100 million SATS = 1 bitcoin.
Because bitcoin has a fixed supply, the amount of SATS needed to obtain the same shares of the S&P 500 decreases over time.
Berkshire Hathaway, a large conglomerate of companies managed by investor Warren Buffet. Probably the most successful company to individually invest in, with a current share price of $622,000. The long-term trend is, less bitcoin needed to purchase the same number of shares of Berkshire stock.
The expanding U.S. monetary supply, through consumer and commercial bank lending and government debt increases the amount of dollars looking for investments. Those dollars make their way into different asset classes causing prices to rise. But they do not rise enough in comparison to the price appreciation of bitcoin over time.
Bitcoin represents an opportunity to save money both for the long term, think retirement, and medium-term trading for a boost in income.
For retirement, the goal is to invest using the same method as one does with a 401k style plan. Simply determine your choice of investment product, ETF or Exchange, and setup periodic deposits. Allocate a portion of your current 401k to bitcoin. There are specific retirement options available that have the same tax benefits if desired.
Now that you have allocated for retirement, you can take advantage of the halving cycle. Below is an all-time chart of SATS/US Dollar. Roughly every 4 years, the price rises, lulls back down then rises again past its previous highs. This pattern has occurred at each halving denoted with pink dots. Roughly 2 years after each halving is the best time to begin a short term (1-3 year) trade denoted with blue dots.
The tops of the market tend to be between 1 and 1.5 years after the halving, during this time converting to USD provides the funds to convert into other living expenses or real estate to upgrade living conditions.
The easiest way to take advantage of this simple strategy is to save dollars during the 18 months after the halving. Then begin a dollar cost average purchase into bitcoin using those funds for the next year until the next halving date. Convert to dollars 1 and 1.5 years after the halving.
What about the “halving” causes the price to swing this way? The answer lies in the issuance schedule of bitcoin. Every miner that competes to find a bitcoin block is paid fees plus an incentive. Today, the incentive is 3.125 for each block, when 10 years ago it was 25. You can see the blockchain at mempool.space
The bitcoin mining industry is cutthroat with the miners using older technology or higher priced electricity losing money hand over fist. Those with better margins are able to hold on to their bitcoin longer to take advantage of future price appreciation. Those who cannot, must sell to pay expenses, the selling pressure to stay afloat can cause prices to fall. The market mechanics of electricity prices, equipment and labor dictate the overall price of bitcoin as the miners are the main providers of new bitcoin for sale.
A short and fun read on mining bitcoin and some of the code in bitcoin as told from the point of view of a dog, check out this 36 page book, The Bitcoin Dog from Amazon.
