After yet another day of heated debate in Congress, Americans are awaiting confirmation of their second stimulus checks by Monday.
According to reports, both Democrat and Republican parties are now in agreement – the new relief package will include another one-time stimulus check of $1,200 per person (and $500 per dependent) for all individuals earning $75,000 or less. There have been other accounts that indicate the income requirement could be as low as $40,000, however.
As unemployment remains at over 11% and many of the states are considering rolling back their reopening plans, most of us are looking forward to this welcome relief. Although many recipients will rush to deposit their checks into savings for a rainy day, here are the reasons why you should consider investing your $1,200 into Bitcoin instead.
The Federal Reserve’s balance sheet has increased by approximately $3 trillion since the start of the pandemic in March, or 14.3% of the 2019 GDP. We are likely to see an increase of $2 to $5 trillion more before the end of 2020. Although the U.S. has the privileged position of supplying the ‘world’s reserve currency’ making the U.S. Dollar in high demand during the pandemic, inflation is likely to catch up in the next 2-3 years, making your $1200 world less than before. Bitcoin, however, is a non-inflationary asset, with a finite amount of 21 million units, that has increased in price and adoption since its creation in 2009.
Hedge Against Wall Street
Wall Street is experiencing an unprecedented and unexpected boom during a crisis, decoupling from the Main Street economy. The value of the American stock market today is approximately $35 trillion, while the U.S. GDP has decreased to below $21 trillion. Many argue that this is the perfect recipe for a crash. Bitcoin provides a hedge against traditional markets as an uncorrelated asset.
Born on January 3rd, 2009, Bitcoin has steadily appreciated in price. An investment in bitcoin five years ago, yielded a 3300%+ return. While investing in the beginning of 2020, would yield a 38% return to date. Although Bitcoin can be volatile and is considered a risky investment (do your own research!), it has outperformed many of the traditional assets in the long term.
Investing at the right time is important. According to a recent report from CoinTelegraph, while short-term bitcoin holders once experienced 10 – 19% price appreciation before selling, the current profit and loss ratio is –1%. While long-term bitcoin holders still have a profit and loss ratio of 5%, that’s a far cry from historical profit margin of 15%.
Institutional Investors Are Doing It
Once a fringe asset no one really understood, some of the biggest hedge funds and family offices globally are now investing in bitcoin. Established university endowments like Harvard, and billionaire hedge fund manager Paul Tudor Jones, have are buying bitcoin to diversify their portfolios.
“At the end of the day, the best profit maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping the performance dust because you thought you were smarter than the market. If I am forced to forecast, my best is it will Bitcoin.”
– Paul Tudor Jones, Tudor Investment Corporation (Source: Investment Outlook – May 2020.)
Be Your Own Bank
Bank corruption has become a concern yet again as a result of the currency crisis in Lebanon. Although more prevalent in developing countries, the financial crisis of 2008 has taught us that even American financial institutions are not immune to failure. Holding some of your wealth in bitcoin allows you to maintain custody over your own funds, and makes it easy to travel with your wealth across borders.
In many countries, wealth can be confiscated by banks and governments with little to no warning. With bitcoin, all you need is your 12-word seed phrase to access your wallet. As long as you don’t share your phrase or your digital keys with anyone, your bitcoin can’t be taken away from you.
Bitcoin is Digital Gold
Many have compared bitcoin to gold, only digital, finite and easy to transfer. Gold has historically provided a stable store of value, maintaining its purchasing power over hundreds of years. But gold is difficult to buy and store. Bitcoin can also be used as a universal store of value, and can be accessed anywhere with a phone and a Wi-Fi connection.
Bitcoin Is Becoming Easier to Use
One of the criticisms of bitcoin is that it is not practical to use for smaller transactions due to high fees. This shouldn’t be a concern if you view bitcoin as a long-term investment. If, however, you want to spend your bitcoin, there are new technologies such as the Lightning Network which allow you to do so. Check out this surf town in El Salvador that built an entire economy on Bitcoin.
Bitcoin is also easy to send to others. Have family abroad? Companies like Western Union can take 5-10% of the international transfer, while the recipient may have to travel out of the way to receive the funds. Bitcoin allows you to send funds easy and quickly from your phone to theirs.
Proponents argue that bitcoin is the next generation of money and is the foundation of our future economy. If that prediction is true, why not get in on the ground floor?
Disclaimer: This article is not meant to serve as investment advice and is for informational purposes only. Please do your own research before making any investments in the cryptocurrency space.