Since its 2009 launch, Bitcoin (BTC) has been one of the most disruptive financial innovations in recent history. With its decentralized structure and potential to offer a new alternative to traditional financial systems, it has drawn attention around the world.
However, with its dramatic price fluctuations and increasing mainstream adoption, it's natural to wonder whether it's too late to get into the game. The short answer is no, but as with any trading decision, timing, strategy, and research are crucial. Let’s examine the key points you need to consider before making your next move.
Bitcoin’s absolutely finite supply
Bitcoin’s scarcity is central to its value proposition, especially when compared to other commodities like gold. Bitcoin’s total supply is capped at 21 million coins, and this number is hardwired into Bitcoin's source code. This fixed supply provides a level of certainty unmatched by gold, which continues to be mined without a known end limit. The coin's scarcity, combined with the regular Bitcoin halving events that reduce the rate at which new Bitcoins are created, gives Bitcoin a uniquely predictable supply. This has made the Stock-to-Flow (S2F) ratio, usually used in commodity pricing models, popular for Bitcoin valuation. The S2F ratio is calculated by dividing the supply of a commodity with its flow — a number usually based on its annual production amount. In the case of Bitcoin, it means dividing the circulating supply of BTC by the amount of BTC being mined in a year. See this article for more details about the specifics of applying the model to Bitcoin.
The S2F model, introduced by PlanB, has been a popular tool, especially in the early days of its introduction. As Bitcoin's mining rate predictably slows, the model suggested that BTC prices should rise significantly. However, while S2F has been accurate at times, it's also shown limitations. For instance, Bitcoin’s price has deviated from S2F predictions in recent years, with prices in 2023-2024 falling just short of the model’s forecasts of $110,000.
Many argue that this is because the model oversimplifies Bitcoin’s valuation by focusing solely on supply while ignoring external factors like market demand, regulatory developments, and technological developments. Critics also point out that unexpected events, such as regulatory crackdowns or macroeconomic shifts, can cause deviations from the model, challenging its predictive power. Regardless, for a fixed supply asset to increase in value, the demand for it has to either remain stable or increase. With that in mind, let's now take a look at Bitcoin's demand trajectory.
Milestones: the road to Bitcoin’s mainstream adoption
Institutional adoption
One of the key drivers of Bitcoin’s continued relevance so far has been its growing mainstream adoption, notably through institutional involvement and government recognition. Bitcoin is no longer limited to niche communities, but is rapidly becoming a new alternative asset in the global financial system.
The introduction of Bitcoin Exchange Traded Funds (ETFs), such as the spot ETFs approved by the SEC in 2024, has marked a significant turning point for institutional investment in Bitcoin. Major financial players like BlackRock, Fidelity, and Grayscale have launched Bitcoin ETFs, allowing traditional investors to access Bitcoin without directly owning it.
Some large corporations are even holding substantial Bitcoin reserves as part of their treasury strategies. Tesla and MicroStrategy are notable examples, with the latter continuing to accumulate Bitcoin since its initial move in 2020. This corporate backing helps solidify Bitcoin’s role in mainstream finance.
Global growth
Bitcoin adoption has also surged worldwide, especially in developing economies, which often use it in the hope of hedging against economic instability. Let's look at a few examples.
Argentina ranks high in Bitcoin adoption, with 23.5% of the population holding cryptocurrency. This is driven by high inflation rates that might encourage citizens to seek what they perceive as stabler stores of value like Bitcoin and Tether.
In Turkey, where inflation rates remain high, around 27.1% of Turks hold Bitcoin, also largely as a hedge against persistent inflation and the devaluation of the lira. This high adoption rate makes Turkey one of the top crypto markets worldwide.
Vietnam also ranks high globally in Bitcoin adoption, positioned fifth in Chainalysis’ 2024 Global Crypto Adoption Index. This popularity is fueled by several factors like high activity on centralized exchanges, but also increasing adoption of DeFi protocols, and large peer-to-peer transaction volumes.
In short, this combination of institutional, corporate, and global adoption might signal that Bitcoin is far from having reached peak demand, potentially providing new entrants with opportunities to enter the market before it fully matures.
Macro environment: geopolitical instability, safe havens, and interest rates
The recent macro environment has played a significant role in Bitcoin’s price movements and attractiveness. In a world of geopolitical instability, with rising tensions between global powers and persistent economic uncertainties, Bitcoin has gained popularity as a so-called "safe-haven asset".
Additionally, central banks around the world have begun cutting interest rates to stimulate growth after the sharp rate hikes of 2022 and 2023. Lower interest rates have tended, in the past, to push traders seeking higher returns towards alternative assets, potentially making Bitcoin more attractive. Moreover, concerns over inflation continue to drive demand for assets that are not tied to fiat currencies, which could reinforce Bitcoin’s appeal as a store of value.
However, Bitcoin’s performance remains highly dependent on broader market sentiment. As its correlation with the S&P 500 has increased, Bitcoin has become more sensitive to macroeconomic conditions, including interest rate changes and monetary policies. This means that while Bitcoin might offer protection against some geopolitical risks, it is absolutely not immune to the effects of broader market downturns.
The final word
Is it too late to get into Bitcoin? The answer depends on your financial goals and risk tolerance. For short-term traders, Bitcoin’s volatility can present challenges, and timing the market is notoriously difficult. For long-term traders, Bitcoin could still hold significant potential, if its mainstream adoption continues to increase and drive demand. So, while Bitcoin has already made substantial gains over the past decade, its growth potential might not be exhausted. However, as with any trading decision, it's crucial to do thorough research, diversify your portfolio, and manage your risk accordingly.
