Too often those who invest or speculate in Bitcoin obsessively watch its price movements over the short or very short term. But Bitcoin was not meant to be a short-term speculation tool but rather a long-term inflation hedge.
Bitcoin and the long-term approach
Looking at its long-term parabola, the picture that emerges is very different. This is in contrast to the classic misconception that it is just a very volatile speculative asset.
Crypto investor Jason Deane has published a lengthy post in which he discusses three main reasons for Bitcoin. Deane argues that it is better to take a long-term approach than to focus on day-to-day price movements.
The first point Deane makes is that so far, Bitcoin has held value over time, though not consistently.
To test whether Bitcoin retains its value over time net of these fluctuations, one way would be to calculate annual average values, such as the average of the daily averages of all the days of the year.
The average 2021 value so far is about $45,000, well above last year’s $11,000 average price.
Going back as far as 2010, we know that this was the first year for which data is available from actual dollar trades on the market. The only year in which the average price was significantly lower than the previous year was 2015, with -48%, which soon recovered with +108% the following year.
Bitcoin and the obvious scarcity
Apart from 2015, the only other year with negative performance was 2019, with a negligible -2% compared to the previous year.
For all other years, performance was positive, or even very positive, as for example in 2017 the average price was 601% higher than the previous year.
So although there have been considerable ups and downs, especially in the short term, over the long term BTC has so far always retained its value, with one brief exception.
The second point Deane makes is that scarcity has yet to become apparent.
To date, 6.25 new BTC are still being created every 10 minutes or so, or about 900 per day. This year, roughly another 328,500 BTC will be created, or 0.17% of the total of over 18.8 million BTC already in existence.
An economic constant
This rate halves every 3 years and 10 months approximately, so it will take a few more years before it becomes abundantly clear that bitcoin is indeed scarce, as there will be virtually no more of it created.
The third point is more complex.
According to Deane, Bitcoin could become “an economic constant”.
BTC could be used to compare the value of goods or assets that are currently impossible to compare except by conversion into different currencies.
If instead values were expressed in Bitcoin, or in Satoshis, anyone could easily and immediately compare prices.
It will take a while for the value to stabilize before we can think about expressing prices in BTC, but in the long term, this could happen.
Deane concludes by saying:
“The key point to remember is that Bitcoin is a long term phenomenon that is yet to gain its terminal velocity, so planning for that long term, and checking progress against the key milestones, is as essential as living in the present”.
“At the same time, the future is where we’ll be spending the rest of our lives. It’s essential to plan ahead and have that sense of security in what is an undeniably imperfect financial system. Your children may well be very grateful to you one day. Perhaps even your great-great-great-great grandchildren”.