For years, institutional investors have watched Bitcoin from a distance with confusion and amusement, but with little to no participation. Though attracted by the high returns, they were terrified of Bitcoin’s childhood, lack of rules, and the countless headlines warning of hacks, bankruptcies, and scams. In the early years, Bitcoin (BTC) lacked the entrances and exits required for most institutional investors, making it virtually impossible to get approved by a corporate investment mechanism.
Connected: Why institutions are suddenly interested in Bitcoin
Bitcoin investment before 2017
However, something strange happened at the 2017 rally. Since the institutes said it was too risky at the corporate level, many insiders personally bought Bitcoin in every possible way.
They bought Bitcoin through exchanges, Bitcoin ATMs and participating in the first coin offers. Many of these individuals are passionate and even obsessed with Bitcoin, and it is with them that Bitcoin began to dig its roots in the financial world.
Bear market after 2017
During the bear market after the 2017 rally, a large number of Bitcoin products were developed and launched specifically for institutional investors. Listed Bitcoin mining companies offer investors exposure to the most fundamental part of the industry.
Bitcoin holdings were securitized so investors on major exchanges could freely speculate on the price of Bitcoin without setting up and using Bitcoin wallets. Companies began taking on debt to buy and hold bitcoin as speculation about bitcoin’s long-term appreciation is worth more than the interest on the debt.
Bitcoin’s response to COVID-19
When Bitcoin fell in March 2020 and bounced off its low of around $ 4,000, the global COVID-19 pandemic was only just beginning. Governments around the world were largely following the same strategy: locking people up and printing more money. Lockdowns, quantitative easing and fiscal stimulus were normalized before the markets could fully digest what was happening.
The markets became inefficient pricing mechanisms, not because the participants acted in bad faith, but because the participants acted only in faith – believing that things could not go on like this for much longer.
With cash coming in daily, the market reacted almost daily without looking for valuable parking spaces for their capital. The market competed with itself for how much and how quickly capital could be parked. What does a logical person invest in as almost every economy and industry in the world is shrinking and world stock prices rise to record highs?
Connected: How has the COVID-19 pandemic affected the crypto space? Experts answer
Buy and hold bitcoin in 2020
This time everything was already there for the investors when they drew attention to themselves again. There were securitized products, on / off ramps, priority, experience and lots of passionate supporters in large institutions. Most important were the on / off ramps. For the first time in the history of cryptocurrency, investors were able to invest in Bitcoin safely, easily, and without special permission using their normal tools and exchanges. With the proper mechanisms in place, companies and investors have done what most investors should do: buy and hold.
In the real world, the simplest solutions are usually the best. This makes intuitive sense as it seems to take into account other seemingly natural laws of life, such as the 80/20 rule or the inevitability of death and taxes.
This also applies to Bitcoin. While there are many ways for most people around the world to make big bucks from Bitcoin, mining, day trading, speculating, etc., the best investment strategy has been simply to buy and hold, no matter who or where you are are Bitcoin.
The reason for this is clear: anyone can buy and hold Bitcoin, but almost no one can beat the market forever. The industry is growing so rapidly that nobody can keep an eye on everything that’s happening, let alone predict the future. You have to live and breathe crypto to beat the market opportunity. Even so, we saw true legends in this area completely wiped out when we thought they could do better than just holding their bitcoin.
Connected: Did Bitcoin Prove to be a Reliable Store of Value in 2020? Experts answer
Why BTC Mining Is More Profitable Than Just Keeping It Up
In Bitcoin’s history, mining has been the clear exception to the “buy and hold” rule. If you can create a scenario with the optimal mix of cheap energy and efficient mining hardware, then Bitcoin mining is a profitable activity in just about any economic scenario and at any Bitcoin price.
Connected: Is Bitcoin a Waste of Energy? Pros and Cons of Bitcoin Mining
To prove this, we did an opportunity cost comparison with buying Bitcoin or buying a Bitcoin miner on the day it was announced by Bitmain. We ran it at $ 0.06 and sold enough bitcoin to pay your utility bills.
In either scenario, you will get more Bitcoin from mining than from holding.
That one simple economic incentive turned the bitcoin mining industry into a $ 5 billion industry in just seven years. Done right, mining is one of the most predictable and secure ways to convert your bitcoin into more bitcoin.
Of course, “done correctly” presupposes one very important thing: that you operate this device reliably and consistently. This is often much easier said than done. Bitcoin mining can be very technical: the equipment is sparse and very varied in quality, performance and condition. Like any device, it also requires the right operating environment, as well as skilled operators and systems to operate well and cost effectively.
From a network perspective, Bitcoin doesn’t care how good or how inexpensive you mean. A terahash from the desert is just as valuable and indistinguishable from a terahash from snow-covered Quebec. But you as the owner will surely notice the difference in cost in your bottom line, one thing is for sure: Nobody is in the mining industry because they want less Bitcoin.
It doesn’t take a genius to make money in a bull market, but it does take a genius to plan and survive a bear market. When we put Bitfarms on the Toronto Stock Exchange in 2018, we were surrounded by a number of great peers, most of whom did not survive to that point. Those of us who survived the bear market have produced stronger, more experienced and better operators with operations and equipment ready to capitalize on the 2021 Bitcoin rally and survive the market that follows.
This article does not contain any investment recommendations or recommendations. Every step of investing and trading involves risk and readers should conduct their own research in making their decision.
The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Emiliano Grodzki is Co-Founder and CEO of Bitfarms as well as Business Builder and Innovator. With over 20 years of successful building multi-million dollar private companies, Emiliano is responsible for setting the company’s overall vision and strategy.