Rationale for long term Bitcoin investment

TimL1974

Hi All, I just want to share my rationale for a long term play I'm looking to make in BTC and would be interested to hear any and all thoughts you may have.

Assuming that the currency itself has no intrinsic value I believe the only way to model a price is based on the incentive structure for continued mining of the currency

The current energy costs to mine a coin in China sits a little above $3k currently. After the halving in mid 2020 and adjusting for inflation the cost to mine a coin will be around $6.5k which i believe is the driver behind the current price of over 8k which has next years halving event plus a premium priced in

With a continued halving of the mining rate every four years and adjusting for even modest inflation the price of a bitcoin will need to be above $250k 20 years from now to be efficient to mine and therefore see the network maintained, without which there would be a total collapse

Am i correct or are there other factors at play ? potential decrease in the price of energy available to the consumer?

Yeah, or it could not, and the whole thing would collapse..

Arrival

[Deleted User] wrote: »

Yeah, or it could not, and the whole thing would collapse..

Fantastic input, very valuable analysis

grindle

OP, you're presuming that the hashrate will remain on a linear upwards trajectory. It may. It also may not. If the price drops 80% right now you'll see a huge drop in hashrate/machines mining, the difficulty would adjust so the blocktime stays regular and BTC remains the same but with less machines mining. Despite the incentive the price doesn't need to go up because the hashrate doesn't need to go up. It would be nice for everybody and for network security if it did, but it's a want rather than a need.

Although it seems unlikely, after the halving in 2020 the price & hashrate could fall by 90%, require much less brute force to secure the network, difficulty adjusts, cost to mine reduces accordingly. Just because the incentive exists doesn't mean it's a guaranteed outcome, you're still hedging your bets that enough people will want Bitcoin and miners will follow suit if that interest exists.

JohnnyFlash

The rationale for buying Bitcoin is so you can sell it for more real money to someone else. Everything else is a lie - I’m in it for the tech, the ethos behind it, the community etc.

Donegal1234

Right now would be a good time to invest with the halving event happening in may. Also don’t store any bitcoin on exchanges use hardware wallet (trezor,ledger). But Only invest in what you can afford lose.

makeorbrake

TimL1974 wrote: »

Am i correct or are there other factors at play ? potential decrease in the price of energy available to the consumer?

The difference between something like gold mining and Bitcoin mining is that with the former, you can determine the bottom based on mining costs. Bitcoin adjusts down the degree of difficulty - so with that, its much more difficult to figure out where it bottoms.

Kickstart1.3

At the end of the day it will all boil down to risk/reward ratios. If you are looking for explosive returns of say 100X it is very unlikely to come from bitcoin the next few years. You would have a much better chance with projects like Stellar Lumens, IOTA, bitcoin Cash etc.
My personal favourite after much investigation is Stellar. The network offers so much in terms of robustness, features and speed. It can be easily adapted to any form of payment system. The biggest plus is the huge community and ecosystem that is growing behind it, and at the end of the day its the masses that will decide its worth.
Currently I'm trading in and out of them, but I have a target price for which I will go all in and hodl.

Dohnjoe

(In my opinion) The key threats to future Bitcoin value are:

- Regulation (global regulators could decide, for whatever reason, to limit banks and fiat gateways from interacting with crypto exchanges)
- Quantum computing (a little over-hyped, but definitely something to consider in the super long term)
- Speculative decline (people just decide these things are pointless and cash out)

On the flipside, the potential upsides

- BTC as a financial instrument becomes more accepted and intertwined with traditional investment assets, an ETF is accepted, more financial institutions start accepting it, it gets added to institutional portfolios, etc
- A future recession makes it a go-to like gold
- People continue to be drawn to the high gains potential of the crypto speculative market and money keeps flowing in resulting in large bulls and bears, which keeps the cycle growing and possibly rising each time

Bob24

Dohnjoe wrote: »

(In my opinion) The key threats to future Bitcoin value are:

- Regulation (global regulators could decide, for whatever reason, to limit banks and fiat gateways from interacting with crypto exchanges)
- Quantum computing (a little over-hyped, but definitely something to consider in the super long term)
- Speculative decline (people just decide these things are pointless and cash out)

On the flipside, the potential upsides

- BTC as a financial instrument becomes more accepted and intertwined with traditional investment assets, an ETF is accepted, more financial institutions start accepting it, it gets added to institutional portfolios, etc
- A future recession makes it a go-to like gold
- People continue to be drawn to the high gains potential of the crypto speculative market and money keeps flowing in resulting in large bulls and bears, which keeps the cycle growing and possibly rising each time

Agree with this but in the threats I would add that bitcoin’s rise could be restricted/stopped by another crypto taking the top spot (this is unlikely in the short/medium term, but it could happen-medium/long term for various reasons - failure to keep up with technical improvements, private or public institutional player able to better promote their own crypto, etc).

And in the opportunities I would add the fact that poorly managed fiat currencies and punitive central bank policies could erode trust in the monetary system and/or trigger a monetary crisis, and bitcoin could be seen by depositors as an escape route.

I'm starting to think the whole crypto thing is being set up to just take over from fiat post the next crash..

When the fiat goes bang the banks will move a new crypto in to fill the space..those who should object will be going "crypto..cool!!" instead of opposing the complete digitisation of the money system..

Arrival

[Deleted User] wrote: »

I'm starting to think the whole crypto thing is being set up to just take over from fiat post the next crash..

When the fiat goes bang the banks will move a new crypto in to fill the space..those who should object will be going "crypto..cool!!" instead of opposing the complete digitisation of the money system..

That's genuinely something I'm excited to see possibly play out. Regardless of my own personal interests in making money out of this, it should be exciting for anyone currently aware of/interested in crypto to see how it handles the next recession since Bitcoin was pretty much conceived because of the '08 crash

Arrival

Arrival wrote: »

That's genuinely something I'm excited to see possibly play out. Regardless of my own personal interests in making money out of this, it should be exciting for anyone currently aware of/interested in crypto to see how it handles the next recession since Bitcoin was pretty much conceived because of the '08 crash

Well..of course you do.. that's kind of my point..you probably shouldn't though..
Completely centralised..no one having money unless the machine says so.. total big brother vibes..cheered on by the unaware..

https://www.ledgerinsights.com/blockchain-patents-global-china-dominates-caict/