Bitcoin: Why Investors Keep Failing to Get It Right

In the field of investment, there is no end to frustrating opinions about Bitcoin. One held very closely by some investment managers is this one – that Bitcoin’s supply limit is difficult to believe in, because it’s not difficult to spin up different Bitcoins. Jesse Felder, former hedge fund manager, and investment researcher wrote in his blog that Bitcoin believers propound the idea that its supply is limited and make it sound much more attractive than other flat currencies. But the number of times Bitcoin has hard forked, with the number and type of circulating Bitcoins multiplying, is enough to point to the fact that it has grown faster than the number of dollars since its creation. Fred Hickey, writer, and investment manager, remarked on his podcast that Bitcoin believers are largely speculators who would just go for the other one if bitcoin got expensive – because all they do is pile on to all cryptocurrencies. These opinions are both presumptuous and driven by a lack of research.


Why is the misunderstanding that new Bitcoin chains will be spun up anytime so common? It is common knowledge that as a cryptocurrency, Bitcoin is pretty unique, but what is the reason behind it? One reason is the technology – the code for bitcoin blockchain is open source and anyone can tweak it to create new bitcoin-style assets. But these new assets have not been able to replace the original Bitcoin. Market research reveals that while Bitcoin Cash and Bitcoin SV increased block size, most investors still go for the original Bitcoin. Bitcoin’s market cap and 24-hour trading volume are still miles ahead of any of the newer assets.

Let’s look into the characteristics of Bitcoin that keep the funds flowing. One reason is scalability – no investor talks about the fact that Bitcoin’s SegWit scaling solution has done wonders in making the decentralization more secure than Bitcoin SV’s 128MB blocks. Next are the market network effects, which are really quite simple to explain – any asset with significant volume in the market has infrastructure and services spring up around it, like the advanced platforms, the complex derivatives, the on-ramps, professional custody, and most importantly – the liquidity. This is a drawback that smaller assets cannot escape – they will always be riskier to invest in. Hence why no matter how expensive Bitcoin gets, it is unlikely that investors will just switch to another asset. It is a combination of the advanced technology of bitcoin and market network effects that make Bitcoin the focus of investors, and for good reason.

The reason investors love to misunderstand Bitcoin is both because of the absence of research and interest. Most investors still believe in the traditional paradigms of investment, and that is what holds them back. Their chief concern is that technology can be easily replicated – just like how Facebook won over other social networking sites, and Google over other search engines, the assumption here is that Bitcoin might lose to other technologically-advanced assets. What investors fail to understand is that unlike the others, Bitcoin is hardly a business and just because its rivals are better at marketing does not mean that they will win.

Sure, technology is malleable and can be subject to the whims and fancies of whoever is controlling it. But Bitcoin could not be more different from a technology-based business being run by power of money-hungry individuals. Nobody knows who created the Bitcoin, so there is no one frantically trying to sell it or make profit from it. It is tweaked by a pretty big group of developers who all come from diverse backgrounds and have different funding sources, but the fundamental code of Bitcoin cannot be changed with the consensus of the whole network, which is pretty much impossible. One can discourage others from using Bitcoin, but it can’t be turned off. This is how Bitcoin differs from other technologies and takes the form and importance of an element, like gold.

The significance of the development of Bitcoin is no less than when metallurgy was invested – it changed society forever. The development of cryptocurrencies has the potential to restructure civilization because never before has the world seen a technology with elemental properties. Well-known investor Paul Tudor Jones recently compared Bitcoin to the metals complex – where Bitcoin is the “precious crypto” and the transactional cryptocurrencies and newer assets are like the “industrial metals.” In a way, the fact that traditional investors fail to grasp the implications of Bitcoin’s technology and potential speaks to how strong and transformative it is.

There is so much different about the investment market this year. U.S. stocks have risen to all-time highs while the dollar has plummeted after worsening COVID-19 numbers in the country and all-time high unemployment figures. However, there is a market consensus, which is usually a signal for change. In a promising development, Bitcoin also recovered from a slump to post gains that made other stocks look weak. The larger feeling in the Bitcoin-investing community is that this particular rise of the Bitcoin is very different from the hype and speculation-driven rise of 2017. There are bound to be fluctuations and unpredictability, but the market this time is completely different – it is more diverse, more liquid, and much more mature. This is what investors need to realize.