Why People Invest in Bitcoin

November 27, 2020
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Bitcoin has limited supply, making it rare and similar to digital gold

Many investors buy and hold Bitcoin because they believe Bitcoin to be a scarce asset like gold, because the total supply of Bitcoin is limited by the Bitcoin protocol to be 21,000,000 BTC.

As explained in Apa itu Bitcoin dan Blockchain?, Bitcoin miners that help process transaction is rewarded new Bitcoin. As of October 2020, miners currently receive 6.25 BTC for every block mined, which means there is 6.25 new BTC that enters circulation every 10 minutes. However, every 4 years, the bitcoin protocol will reduce this mining reward by half – this event is called ‘halving’. In 2024, miners will only receive 3.125 BTC per block, and in 2028, miners will only receive 1.56 BTC per block (and so on). Currently, about 18,500,000 BTC has been mined, leaving us with about 2,500,000 BTC left. Due to continuous halving, the last Bitcoin will be mined in the year 2140 – and it is getting scarcer every 4 years.

Bitcoin can be a superior store of value than gold

Many Bitcoin investors believe that although Bitcoin price is volatile right now, in the long run (4+ years) Bitcoin can be an even better store of value than gold. There are several properties that make Bitcoin potentially a better store of value than gold:

  1. Divisibility:
    If you have 1 bar of gold, it is very hard to divide that gold into smaller pieces for small transaction. However, if you have 1 BTC, you can send someone as small as 0.00000001 BTC.
  2. Ease of transaction:
    Gold is heavy, hard to carry around, and dangerous to transport. However, you can send anyone in the world any amount of Bitcoin within 10 minutes.
  3. Security of storage:
    Gold is easily stolen, and to securely store large amount of gold, you need to spend considerable security measures (i.e. safe deposit box, security camera, etc). On the other hand, you can store any amount of Bitcoin in secure hardware wallets (the size of USB stick) such as Ledger or Trezor.
  4. Network Effect & Price Appreciation:
    Gold is already a mature / old asset class, and the room for price growth is limited. Bitcoin is a relatively younger asset class, and because it lives on the internet, it benefits from network effect: the more people use Bitcoin, the faster the value / demand for Bitcoin will be.

Some Investors buy Bitcoin as long-term investment and protection against money printing

Since the big financial crisis of 2008, developed economies’ central banks (such as Federal Reserve of USA and European Central Bank) has been engaging in money printing (called “Quantitative Easing”) to help stimulate each of their countries’ economies. It is estimated that Federal Reserve (USA) prints $1.2 trillion USD in 2008, and $3 trillion USD in 2020 (https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm). The Fed prints money digitally, as noted by Fed Chairman Jerome Powell on the video clip below. Because of money printing, some investors worry that USD will devalue in the long term, and thus they want to invest in scarce assets which supply cannot be inflated, such as Gold and Bitcoin.

Traders trade Bitcoin to make quick profit

While long-term investors choose to buy and hold bitcoin, short-term traders love to buy and sell bitcoin daily or weekly. Because Bitcoin price is volatile and the market is open 24/7, experienced traders can enter and exit a bitcoin investment within a few hours, days, or weeks. Traders use advanced techniques such as technical analysis, market sentiment analysis, and other tools to make quick profit in the short term.

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