Making sense of the Bitcoin price: Time to invest?
There's no shortage of articles or people around to tell you why bitcoin investments in Nigeria could be another pyramid on the brink of collapse, mainly because there's been a continued dip in the price of bitcoin since the beginning of 2018.
Here's an interesting observation: new technologies often attract these gloomy reports, and the bear market is nothing out of the ordinary.
Here’s a quick summary of what you’ll find in this post:
- Bitcoin bear market compared to the dot-com crash
- Businesses and countries already embracing Bitcoin
- How Bitcoin could solve payment issues in Africa
- Potential benefits that could accrue to you investing in Bitcoin now
- Plus, a free checklist to aid investing in Bitcoin on your own.
Bitcoin technology is new but it's development follows a familiar path...
Did you know the price volatility and unimaginable high-profit margins also characterised some traditional asset classes at their early stage of development?
For example, Amazon rose more than 6,000% in its first two years after its public offering but the price crashed only a few years later. However, the smart investors who bought Amazon shares in the early years when prices were low and held on to their portion through the price plunged are currently smiling to the bank. The peak price from back then still looks cheap by comparison today.
Many investors then only had to buy into the idea of Amazon - an unfamiliar strategy of using supply-chain management software to create a digital book warehouse and a mall synthesised into a single website.
Most didn't even have a clear understand how much its shares should be worth, meaning speculation also flourished.
Bitcoin bear market
Bear markets are not new to the world's first decentralised digital currency. Since 2009 there have been four bear markets with bitcoin price declines ranging from 28 per cent to 92 per cent.
The graph above from Morgan Stanley in February 2018 highlights bitcoin's recent descent into a bear market, which has seen it fall more than 70% from its December peak to its latest lows in 2018. At the time of writing, 1 btc is about 1,461,465 Naira (US $4,015); the price of 1 bitcoin had reached a peak of $20, 000 in December, 2017. The American investment firm argues this is a typical turn of events for bitcoin, highlighting its similarities to the dotcom-bubble Nasdaq.
Morgan Stanley said it's “nothing out of the ordinary,” and that these dips have historically preceded rallies in the price of the asset. Past bitcoin bear markets have lasted up to five months on average.
Amid the rapid churn in the price of bitcoin, however, it is essential to see the bigger picture. Bitcoin and all the other cryptoassets (yes there are others — over 1500 and counting) could be the beginning of something big.
Let's take a look at the categories of people and countries already adopting bitcoin, and why it is steadily and continuously shifting the way the global financial markets work.
Big businesses explore cryptocurrencies
From Microsoft to Lamborghini, the list of global companies readjusting their business models to integrate cryptoassets, especially Bitcoin, is continually growing.
These companies are early believers that embraced Bitcoin to expand their marketplace and benefit from new business segments. Some others have only caught the wave a bit later after realising they can no longer overlook it.
One of the reasons global businesses are warming up to Bitcoin is because it's a perfect solution to payment chargebacks. These payments are a massive problem for many merchants. More than $7 billion worth of chargeback fees is estimated to be absorbed by merchants on an annual basis.
Bitcoin lowers the risk of consumers filing false chargebacks, which makes it a smarter payment method for businesses.
Progressive countries legalise Bitcoin
Leading economies such as Japan and South Korea are now regulating cryptoassets to benefit from these innovative technologies. Progressive governments understand the future of these assets and see them potentially as a reserve base for their national currencies.
In the infographic shown below, only 4 African countries have legitimised the burgeoning market; the majority of African governments have decided to keep a neutral stance.
North American and Western European countries have been the most receptive, however. There are currently 99 (40%) countries that have unrestricted Bitcoin laws, out of 246 total.
Cryptoassets offer an unprecedented opportunity to Africans
Cryptoassets present a unique opportunity for Africans to inexpensively participate in a global and fast-growing asset class that has the potential to have significant upside. - @YeleBademosi
Bitcoin as a peer-to-peer network give Africans access to a new asset class without the permission of government authority - or any other traditional banking institution. Also, the added advantage of being able to safeguard wealth against inflationary pressures often prevalent in many African economies.
Typically, when you save your assets in traditional financial institutions such as banks, you give them full access and control over your assets. There is no way you can access your wealth without their involvement in the transactions.
The current banking system might sound reasonable to some people, of course, until you in a situation where you cannot transfer or withdraw your own money because of different valid or invalid reasons.
Failed bank transactions are commonplace in many African countries
Many people have experienced failed transactions with little customer support to help them retrieve their money. It wouldn't have happened with the blockchain!
The same thing applies to more tech-enhanced payment solutions such as PayPal. Some of them would not hesitate to freeze your account if the account doesn't meet their standards, but then they get to determine those standards.
Even worse, there are some countries in Africa where you can't receive money with your PayPal account.
Bitcoin provides a better alternative
Luckily, with bitcoin, things are different. You can actually have full ownership of your assets and transfer to anyone you wish and also receive payments. Within minutes, you can complete a transaction!
Many people living on the African continent have started recognising the value of bitcoin. There has been a surge in the number of people using bitcoin. South Africans most especially, while adoption in Nigeria and Kenya are increasingly catching up.
Now to the question everyone likes to ask
Is it too late to start bitcoin investment in Nigeria?
The answer is an obvious NO! It is not too late to invest in bitcoin.
It is similar to wondering if it is too late to start an online business. Remember how the whole online business movement started? Very basic, very unsophisticated. Today, two decades later, it is still growing, and businesses are making millions and billions from it.
Same way you can still invest in Amazon shares and make some returns even though they are a lot more expensive now than in the early years.
Cryptoassets adoption timeline
The price of bitcoin might be taking a plunge, but the technology seems to be on the right path. The next few years are expected to bring more developments: upgrades in security; increase in the speed of processing transactions; and a lot more transparency.
One more reason...
The bitcoin ecosystem might be intimidating to an average person, because of the complications in understanding the technological aspect of the asset.
The use of technical computing language can turn off and discourage prospective investors. That is why many shy away from this investment class right now, but that could be your opportunity.
The fact that bitcoin intimidate many people is why you should consider investing now. It can be a sharp learning curve, but it would all be for your long-term benefit.
Also, if the development of bitcoin is similar to other asset classes, this moment in time when many people are still sceptical, and prices are quite low, could be a unique opportunity for you.
Is there a success formula?
Before you start investing, we recommend our article on how to win investing in bitcoin and other cryptoassets in Nigeria. It gives you a practical and complete breakdown of the classes of cryptoassets, how you could earn returns from your investments and mitigating risks associated with them.
The truth is, there could be various winners in the industry, and not all these cryptoassets can end up successful. However, a few, such as bitcoin, XRP and Ethereum - with active communities and developer support - could be worth assessing.
Since nobody knows for sure which cryptoassets will be the big winners, we encourage people to spread out their investments over different asset classes.
BONUS: Learn some new investment terms and get access to our investment checklist
We understand how complex digital assets can be to beginners. It's easy to get turned off with the various new words, which is why we put together some terminologies to help you on this new path.
Critical concerns for cryptoassets?
People often say bitcoin and other cryptoassets are prone to fraud because they are irrepressible by the standard regulations binding traditional financial institutions.
Well, let's not forget that over the years some people have covertly used these fiat currencies for money laundering and nefarious activities too.
Will a government ban affect the price of bitcoin in the future?
It's important to understand that it's hard to ban Bitcoin. A government can attempt to, but it's almost an impossible task. It can only ban cryptocurrency exchanges from operating in the country and repress the distribution of the coin.
Why can't a government ban Bitcoin? The government needs to shut-down the internet to achieve that. Even though not impossible, that approach is almost unrealistic given the pervasiveness of the use of the internet.
The other and more realistic scenario is that governments would increasingly implement rules and regulations to protect investors like you.
A government clampdown on bitcoin could lower the price, but to what degree, we might not be able to tell in advance.
Ultimately, there are very few governments in the world that have outrightly declared bitcoin illegal. Presently, more government institutions are warming up to the asset than trying to repress it.