There comes a point in every investor’s journey when he must admit he is wrong about something. In my case, I was wrong about bitcoin and whether it would ever be considered a legitimate asset class. This realization dawned on me in the last month when the price of bitcoin passed its December 2017 highs of $20,000. My prior belief was that bitcoin wouldn’t surpass these highs for many years, if at all. I didn’t think that bitcoin was “going to zero,” but I also didn’t think it would eclipse its December 2017 peak anytime soon.
Nick Maggiulli is chief operating officer at Ritholtz Wealth Management and author of the “Of Dollars and Data” financial blog, where a version of this article first appeared.
Now that it has surpassed that peak by over 50%, I have come to realize that bitcoin isn’t the one-trick pony I thought it was. As Paulo Coelho wrote in “The Alchemist“:
Everything that happens once can never happen again. But everything that happens twice will surely happen a third time.
Well, here we are again. Bitcoin is on another spectacular bull run and investors are taking notice. Now that bitcoin has survived (and thrived) beyond its 2017 peak, many investors who used to see it as a joke are now realizing it isn’t one. I am one of them.
I have changed my tune on bitcoin, but not because of many of the arguments put forth by bitcoin bulls. For example, bitcoin bulls have claimed that bitcoin would be used as a currency, that the U.S. dollar would plummet in value and that the halving in May 2020 would increase bitcoin’s price. They were wrong on all counts, yet bitcoin’s price has still gone up.
What the bitcoin bulls were right about was increased adoption and the ability of many bitcoin owners to hold (“HODL”) even as prices rose dramatically. These two effects (more demand from buyers and reduced supply from sellers) have helped to boost bitcoin’s price and cement it as a legitimate asset class within the investment community. As a result, bitcoin has become a form of digital gold. You may not agree with this assessment, but if you still think bitcoin is “going to zero” you should reconsider your assumptions.
Why bitcoin is here to stay
The problem with arguing that bitcoin is “going to zero” is there are too many investors who are willing to buy it at a price far above $0. I remember speaking to many non-crypto investors before the recent run-up in price who said they wouldn’t buy bitcoin at $10,000, but if it dropped to $1,000-$2,000 they would surely jump in.
Well, guess what? Now that the current price is above $30,000, some of those investors have likely increased the limit at which they would consider buying bitcoin. Instead of buying at $1,000 these same investors may be happy to jump in closer to $10,000. And every time the price goes up in the future, these “mental buy limits” go up as well, increasing the likelihood of bitcoin’s future survival.
Read more:Nick Maggiulli: Why I’ve Changed My Mind on Bitcoin – CoinDesk