Is the Bitcoin Bull Run Done?

The Critical Question

The price of a single Bitcoin has gone up almost 55,000% since inception, and over 400% in the past year. 

When you hear those numbers, a common knee-jerk reaction is to feel regret and resignation. "I guess I missed that train."

But a knee-jerk emotional response isn't always the best way to make investment decisions.   In fact, it would be a logical fallacy to conclude that an investment’s past success should make us pessimistic about its future.  The critical question to ask is whether Bitcoin is appropriately valued today given its potential (and likelihood to achieve that potential).

The Fallacy of Success-driven Pessimism

Historical examples abound of stocks that were labeled as overvalued after experiencing sensational growth, only to continue going up in astonishing fashion.  

Exhibit A: 

At the time of the headline above (Feb 2014), Amazon’s stock price had gone up 24,000% since inception. But if potential new investors were put off by Amazon’s historical success, they would’ve missed out on an additional 820% climb since then. 

This article would get too long if we mentioned the many other investments where it would have been disastrous to fall into the “success-driven pessimism” fallacy (e.g. Apple, Tesla, Facebook, Google, etc).

On the flip side, assuming that “stocks only go up” is a fallacy as well (though admittedly, a fun meme). So how should an investor think about Bitcoin? 

Bitcoin’s Potential

We’re proponents of evaluating Bitcoin’s current value against its future potential value and likelihood to get there as a way to guide investment decisions. 

To do this, we need to first understand what Bitcoin is.  The rabbit hole goes deep and can be intimidating, so our infographic simplifying what Bitcoin is might be a good starting point.  

But in a nutshell: to understand the promise of Bitcoin, think about the US Dollar. Why does a piece of paper have value? The paper and ink itself is not inherently valuable from a materials perspective. Ultimately, it has value because there is social consensus that it can act as 1.) a store of value and 2.) a medium of exchange for goods/services. Bitcoin has the potential to become this, while being better than the USD in significant ways (decentralized, digital, and deflationary).

Getting Concrete

How does this translate into a number?  

Well, the more conservative Bitcoin bull position is that Bitcoin will be useful just as a store of value (like digital gold), not necessarily a currency (like a digital USD). 

Gold's market cap (total money invested in it) is roughly $11 trillion. Bitcoin's market cap is currently around $1.2 trillion as of Oct 2021. 

Even if Bitcoin reached only half of gold's market cap, that's more than a 5x (400%) increase to go.

How, Then, to Invest?

Given all this, we at Volt are believers in Bitcoin and also believers in educated investing and calculated risks.

We know, though, that learning about Bitcoin is a journey and so we’ve come up with an accessible investment strategy designed for the Bitcoin-curious.

It leverages diversification and options to hedge against a Bitcoin-related crash and against missing out on a Bitcoin rally.  Easier than entering the world of crypto exchanges and hardware wallets, this strategy can be implemented through traditional investing accounts (including a retirement account).

None of this should be taken as financial advice, however. Each individual should examine their own situation and do their own research.

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