So far in 2022, the entire crypto market has been impacted by wider economic and political uncertainties, led by Bitcoin (CRYPTO: BTC), with prices down more than 50% over the past six months and the price heading for the ninth consecutive red weekly candle. And while Terraform Labs successfully airdropped new Luna tokens to previous holders, the market sentiment continues to be bearish, with the Fear and Greed Index remaining in the doldrums.
One way to avoid panic selling when the price of cryptocurrencies drop significantly is to remind yourself of the essentials, to stick to your plan and don’t invest more than you can afford to lose. Of course, that’s easy to say when you’ve lost money in Luna and seen your Bitcoin investments go down in value. However, there’s also an upside to the current market conditions as users can now buy Bitcoin at the new low price around the $30,000 mark. But no matter what level your holdings in the current market, you should be optimistic about the long term viability of Bitcoin. Here are four key reasons to consider, to help re-frame your mindset and support your belief in Bitcoin going forward.
Mass adoption of crypto assets
According to relevant data, cryptocurrencies have reached a tipping point in 2021. It has evolved from what many consider a niche investment to be a global, established asset class. Venture capitalists are pouring money into the cryptocurrency market. Among them, venture capital invested more than $30 billion in crypto assets and blockchain startups, with more than $10.5 billion in investment in the fourth quarter of 2021 alone. With an estimated $10 globally in the first quarter of 2022, reportedly the largest amount to date, and double the level for the same quarter in 2021. In fact, investment in crypto has continued to grow despite this year’s decline in Bitcoin price. "This decoupling is demonstrative of investors' disbelief that a prolonged bear market in digital assets is forthcoming, as well as the significant amount of dry powder held by funds seeking to allocate to the sector," said Alex Thorn, head of firmwide research at blockchain-focused bank Galaxy Digital in New York earlier this month.
Many major financial institutions are also exploring cryptocurrencies. Recently, Fidelity, the largest retirement plan provider in the US with over $4.2 trillion in assets under management, said it would allow investors to deposit up to 20% of their retirement savings in the form of Bitcoin into their accounts. While banking giant JPMorgan recently said that despite the crypto crash, its estimate of Bitcoin's fair value is $38,000. “The past month's crypto market correction looks more like capitulation relative to last January/February and going forward we see upside for bitcoin and crypto markets more generally," the bank’s strategists said. In addition, both Visa and Mastercard have launched their own crypto cards. And as the regulatory environment is catching up, ironically thanks in part due to the Terra collapse, there is reason to believe that cryptoassets will enjoy mainstream adoption in the future.
Countries adopting Bitcoin as legal tender
El Salvador was the first country to adopt Bitcoin as legal tender, led by President Nayib Bukele, but so far it remains uncertain whether the bold initiative will succeed. As reported in the Wall Street Journal on May 14, “there are no indications that Mr. Bukele plans to change course. On Monday, he said on Twitter that El Salvador bought 500 bitcoin at an average price of $30,744. “El Salvador just bought the dip!” he added.” It’s not just El Salvador, the Central African Republic also recently approved Bitcoin as its national legal tender. No one could have imagined that this cryptocurrency, which was only invented some 13 years ago, could become the legal tender of a country today. If these experiments succeed other countries may adopt Bitcoin or other cryptocurrencies as their legal tender in the future.
Is Bitcoin the cryptocurrency of the future?
One of the appeals of Bitcoin and other cryptocurrencies is that it removes friction in terms of costs and transaction speeds from payments, especially international transfers. Indeed, according to Ark Invest, cumulative Bitcoin transfers have grown by more than 463% in the last year. ARK analyst Yassine Elmandjra wrote in the report ‘Big Ideas 2022’ that Bitcoin will settle $13.1 trillion in 2021, a figure that even exceeds Visa’s payment volume.
Ark Invest’s research also highlighted several areas where Bitcoin could take market share from traditional activities. These include international remittances, emerging market currencies, institutional investment and acting as a form of digital gold. Some experts predict that if Bitcoin can make significant progress in advancing these use cases, its price could exceed $1 million by 2030.
Source: ARK Invest’s Yassine Elmandjra tweet, Jan 25, 2022
Bitcoin's innovation continues apace
Although Bitcoin is not run by a centralized organization, it continues to grow along decentralized lines. There is a small core group of developers working on improving the network, fixing bugs and security issues, and improving functionality. For example, last year Bitcoin implemented a major upgrade called Taproot to improve privacy, scalability, and security. Another potentially significant move is the development of the Lightning Network, a layer 2 solution to Bitcoin that reduces costs and increases speed. As reported in Cointelegraph on May 30, “Bitcoin Lightning Network capacity attained an all-time high of 3915.776 BTC, as evidenced by data from Bitcoin Visuals, displaying a commitment to the cause of improving BTC transaction speeds and reducing fees over the layer-2 protocol.” This follows news from CEO of Strike, Jack Mallers, at the Bitcoin 2022 conference, that the company’s plans to collaborate with point-of-sale behemoths Shopify, NCR, and Blackhawk Network to revolutionize the payments industry. As a result, online retailers that support Shopify can now accept payments via the Lightning Network, in turn allowing US merchants to receive payments from customers globally as US dollars. As the integration of the Strike wallet is with major online players in the US economy, this could potentially do a lot for the broader adoption of Bitcoin in the retail industry.
While there are good reasons to remain optimistic about Bitcoin, there are also still many things that investors and traders need to be careful about when investing in Bitcoin and cryptocurrencies. Data in recent months confirms once again that cryptocurrencies are a highly speculative and volatile asset. Cryptocurrencies are still a relatively new sector compared to traditional investments like stocks and funds, and while we don’t have certainty exactly how it will develop in the long term the potential is clear to see. “I believe Bitcoin is a viable long term investment both as a store of value looking to the future, with the price trending significantly upwards after each halving event. But also, I’m excited about the rapid development of the Lightning Network, for both retail players but also for financial inclusion across the globe,” said BigONE Chairman Anndy Lian.
