Bitcoin and other cryptocurrencies have experienced a major sell-off this week following China’s crackdown on the sector, but the “crypto haters” are wrong to dismiss the digital assets.
Around $400 billion in value has been wiped from the total digital currency market since Friday, when a major Bitcoin mining hub ordered miners to shut down operations.
It followed reports saying that China’s central bank had a meeting with banks and gave instructions to freeze all payment channels supporting cryptocurrency trading.
Bitcoin, the world’s largest cryptocurrency, experienced a wild trading session Tuesday where it briefly dropped below $30,000 – seen as a key support level - before rallying back into positive territory.
Yet for long-time, serious crypto investors this week has not been a major cause of concern and more a case of ‘here we go again.’
For many investors, experienced and less experienced, the new lower prices triggered by the panic-selling, will be used as a key buying opportunity.
Even those in China – which is a major market for Bitcoin and the wider crypto sector - will find ways to navigate their way around the system and top-up their portfolios at the lower entry points.
We can expect further pull-back in the price of Bitcoin in the near-term, which too will be used proactively by investors.
It’s our experience that investors are not in crypto to make a quick buck. They’re in it as a longer-term, future-first investment to create and build wealth.
There are five key factors driving investors towards cryptocurrencies.
First, inflation. There are legitimate and growing concerns about inflation as economies re-open and pent-up demand is unleashed by households, businesses and entire industries but is met with supply shortages.
Bitcoin is widely regarded as a shield against inflation mainly because of its limited supply, which is not influenced by its price.
Second, institutional support. There is growing investment from major institutional investors, bringing with them capital, expertise and reputational pull.
Third, regulation. Global financial watchdogs are increasingly looking into establishing a regulatory framework. Why? Because they’re taking crypto more and more seriously as a financial asset and a medium of exchange.
Regulation, which I believe is inevitable, would give more protection and, therefore more confidence, to both retail and institutional investors.
Fourth, demographics. Millennials – who are beneficiaries of the largest-ever generational transfer of wealth, predicted to be more than $60 trillion from baby boomers to millennials over the next three decades – have grown up on technology. They are digital natives. Cryptocurrencies are, by their very nature, tech-driven.
In addition, they are decentralised, so not controlled by any financial institution – which are largely viewed as outdated and untrusted by millennials.
Five, the future of money. Savvy investors appreciate the inherent value of digital, borderless, global currencies for trade and commerce purposes in our increasingly digitalised economies in which businesses operate in more than one jurisdiction.
As such, cryptocurrencies are regarded as the future of money.
crypto haters have enjoyed knocking the digital assets this week, but savvy investors aren’t spooked by the current volatility. They’re confident in their longer-term trajectory.
Nigel Green is founder and CEO of deVere Group. One of the world's largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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