[Disclaimer: I own Bitcoin and several altcoins. This is not investment advice and is provided for information only. This considers the economic case for cryptocurrency and is not a recommendation to buy. Do your own research and consult a financial advisor.]
The key arguments in favour of buying cryptocurrency are:
- Bitcoin is a historic revolution in money and is going to change the world
- The best altcoins are going to revolutionise the way we use the internet
- Cryptocurrency removes wealth from the banking system
- Cryptocurrency is easy to store
- The large market cap cryptocurrencies have liquid markets
- Institutions are going to buy more cryptocurrencies
- Cryptocurrency diversifies your portfolio
- Cryptocurrency can be a great speculation
But already it is clear that this development is going to be a monumental revolution in money.
Bitcoin, the first cryptocurrency and one that exists in a category of its own, is arguably the hardest money known to man.
Monero, the premier privacy coin, was developed to address what it saw as Bitcoin’s biggest flaw, namely the lack of privacy and therefore fungibility.
The rest of the altcoin world is much more complex.
Some altcoins are outright scams. Some appear to have little purpose and no value proposition.
Some seek to be hard money, like Bitcoin, but offer some improvement such as scaling, speed or privacy.
Others, like Ethereum, say that its blockchain network will form the basis of a new decentralised internet. In this case its token is not money in the same category as Bitcoin or Monero, but is nevertheless a potentially revolutionary new technology.
Many Bitcoin maximalists argue that Bitcoin is the only coin worth owning and, despite Bitcoin being a cryptocurrency, make the distinction between Bitcoin and crypto as distinctly separate spheres.
I don’t quite make this distinction, instead I add a third category:
- Attempts to be a better version of hard money than Bitcoin e.g. Monero
- Technology speculations e.g. Ethereum
This helps me gain clarity as to the reasons why to buy different cryptocurrencies and helps simplify the complex and fast moving crypto landscape.
It acknowledges Bitcoin as the supreme cryptocurrency asset, while allowing the possibility that Bitcoin may fail or the future might be a multichain world where many cryptocurrencies survive and thrive.
8 Reasons To Buy Cryptocurrency
1. Bitcoin Is A Historic Revolution In Money
Attempts at developing a working cryptocurrency had existed for decades prior to Bitcoin’s inception.
But Bitcoin was the first to overcome what is known as the double spend problem and make cryptocurrency work.
Bitcoin is digital but it is tethered to the real world through the computational power of proof of work.
Its scarcity and its decentralisation mean it is a revolution. Never before has there been a currency with a hard cap on supply that cannot be centrally controlled.
Bitcoin is a serious challenger to gold as the premier store of value and protection from the debasement of fiat currencies. It is still volatile in the short and medium term but its long term trajectory is up due to the combination of increased adoption and fiat debasement.
2. Altcoins Are Going To Revolutionise The Internet
For some people the only use case for a blockchain is money. And they argue that in the end the hardest money will survive and inferior forms of money will die.
For adherents of this argument, Bitcoin is the only cryptocurrency worth buying. Everything else is a shitcoin.
I’m open to that argument being right. I’m also open to that argument being wrong.
There is a case to be made that Ethereum and other blockchains will revolutionise the internet in what is known as Web3.
Web1 was the read only web where users would access static content like webpages.
Web2 was the interactive social web where users would both read and create, although it was highly centralised.
Web3 is supposedly going to be a new decentralised web built on interconnected blockchains.
If this turns out to be the case then the tokens of those blockchains that emerge as the key players, will be extremely valuable.
3. Cryptocurrency Removes Some Wealth From The Banking System
The compelling offer of the entire cryptocurrency ecosystem is that it is creating an alternative decentralised financial system.
For those who have concerns for the stability of the current system this is appealing. Rather than waiting and hoping for politicians to make the difficult decisions that real reform would entail, crypto offers the opportunity to opt out and participate in an emerging parallel system.
By removing some of your wealth from the banking system you are protecting yourself from the risk of a bank failure, a bail in or even capital controls.
While this risk may seem remote to those living in jurisdictions that have been stable in recent decades, many people in the developing world would disagree.
4. Cryptocurrency Is Easy To Store
Cryptocurrencies are very straightforward to store, as long as you follow some basic safety considerations.
It’s not quite as simple as storing funds in a bank or brokerage account, but it is much easier than storing real estate, collectibles or precious metals.
Cryptocurrency is stored and accessed using something called a private key. This is a long alphanumeric sequence, which is often converted to a 12 or 24 word mnemonic seed phrase. This is the cryptography part of cryptocurrency.
It sounds complicated and it can be if you go deep into it. But from a user’s point of view, what you need to do is make sure have access to and store the private key or mnemonic seed phrase somewhere safe, such as a home safe or a safety deposit box.
This should be done with paper or preferably something more solid like a steel plate. It should never be written down or stored on a computer or phone.
Hardware wallets such as Ledger and Trezor can help you do this in a secure way.
5. The Large Market Cap Cryptocurrencies Have Liquid Markets
Traditionally people seeking to preserve their wealth with a stable store of value over time have used land, collectibles and gold.
Of those three, gold is very liquid but land and collectibles are not. The latter two are not fungible and can only be sold for whatever a market participant is willing to pay. Price is very subjective and it can take a long time to find a buyer.
Like gold, many cryptocurrencies have a deep and very liquid market. This is not the case for many of the newer or smaller altcoins.
But it is the case for Bitcoin and higher volume large cap cryptos that have been around a long time like ETH, DOGE and LTC.
While the price can be quite volatile, there is no difficulty is disposing of cryptocurrency for cash through a crypto exchange if you need to urgently liquidate.
6. Institutions Are Going To Buy More Cryptocurrencies
The first few bull markets in cryptocurrencies came from either enthusiasts or retail investors.
This limited the amount of money that could flow into the crypto space.
However, as crypto has gained in popularity there has been more and more institutional interest, especially recently.
While this institutional money is naturally focused on Bitcoin, there is also some interest in Ethereum. In time this interest may extend to other altcoins as well.
Institutional money doesn’t like volatility and they also have additional regulatory hurdles to overcome to invest in assets like cryptocurrency. But there are big moves happening now.
This is because forward thinking institutions can see the technological appeal of cryptocurrencies and they want to be part of that future. Others merely see a new asset class that has now gained mainstream credibility and they want to be part of the price action.
This increases the case for cryptocurrency for several reasons. Firstly, large amounts of institutional money flowing into assets with small market caps will have the potential to massively move the needle on price. So being in early will be good.
Secondly institutional adoption increases the credibility of cryptocurrency in the eyes of the skeptics, encouraging more people and other institutions to participate in the market. This will have a snowball effect.
Thirdly, while cryptocurrency technology is sound, it still needs to be accepted by the market. Even the hard money Bitcoin could in theory be rejected by the market. Institutional buying shows the clear trend that the market is embracing and not rejecting cryptocurrency.
7. Cryptocurrency Diversifies Your Portfolio
Cryptocurrency is now firmly established as its own asset class.
In fact it really is seen as two asset classes:
Bitcoin as an asset class has outperformed everything else over the last decade.
Some altcoins, like ETH have done the same.
While cryptocurrencies are hugely volatile the explosive gains can have a huge influence on the performance of your entire portfolio. It only takes a small exposure to have a significant impact on your portfolio.
These life changing gains won’t be around forever as the market stabilises with increasing adoption.
Nevertheless the ability to hold some wealth in an alternative asset class makes a lot of sense for diversification purposes.
8. Cryptocurrency Can Be A Great Speculation
The crypto market is still in its infancy and there is still so much room for increasing adoption to lead to a massive run in prices.
Regardless of the use case of Bitcoin as sound money or Ethereum as the new internet, there are speculative gains to be made in these emerging technologies.
I’m a sound money guy and a conservative investor. So I’m not going to bet the farm on crypto. While I’m not great at understanding the finer points of cryptocurrency technology, I understand enough of the economic case to give me confidence that adoption will continue to increase. Therefore I’m happy to speculate.
There is nothing wrong with speculation as long as you keep your position sizing small and you are clear in your head and in your portfolio what the differences are between investing and speculating.
I am bullish on Bitcoin because it is sound money.
I am cautiously bullish on some altcoins.
However, I’m willing to admit that I might be wrong on both fronts.
As an investor I don’t think you should be ideologically wedded to one view and I think you should be prepared to change your investment thesis as circumstances change.
Perhaps it’s my historian’s mindset but I want to wait until more water has flowed under the bridge until I make a judgement but I think the jury is very much still out on the future of cryptocurrency.
Will Bitcoin alone succeed? Will multiple cryptocurrencies succeed? Will none of them succeed?
Only time will tell.
But looking at the history of cryptocurrency and weighing the probabilities I’m willing to bet that multiple cryptocurrencies succeed.
And for that reason I am a buyer.
Ammous, Saifedean. The Bitcoin Standard : The Decentralized Alternative to Central Banking Hoboken, New Jersey: John Wiley & Sons, Inc, 2018.
Edstrom, Andy. Why Buy Bitcoin : Investing Today in the Money of Tomorrow. Los Angeles, California: Countercycle Media, 2019.