Bitcoin is the oldest cryptocurrency in existence, originally made as proof of concept. Since its inception in 2009, it has had an ATH, or all-time high, of more than $69,000, with a current market cap of $896.0 billion.
In recent years, it has become the de facto face of the crypto market as a whole and is the token with the largest value per token. Since reaching its peak of $69,000 in November of 2021, it has been steadily dropping in price, along with the crypto market as a whole. But why are the world’s richest investing even more in Bitcoin? To understand why we first need to look at what Bitcoin is and how it affects the markets.
What Is Bitcoin?
Bitcoin is an investment vehicle for some and an alternate currency based on the blockchain (commonly known as cryptocurrency) that can be used like fiat currencies to buy goods and services for some others. Bitcoin was invented in 2009 by a programmer using the pseudonym Satoshi Nakamoto. Unlike traditional currencies, Bitcoin has no physical coins or notes; instead, the currency is present in digital form and exists only in the form of data on computers or devices. It is not printed and is instead “mined” (generated) by dedicated computers, in much the same way as gold, diamonds, and other precious metals are mined and extracted from the Earth.
Bitcoin is decentralized, meaning that no single government or institution is responsible for controlling or issuing it. Because of this, the government has next to no control over its distribution, making it impossible to freeze access to.
Bitcoin And The Rich
The richest in the world are the ones with the most invested in Bitcoin and other cryptocurrencies on an individual level due to their higher risk tolerance of crypto’s volatility and greater disposable income. There are a few reasons behind this, from portfolio diversification to increasing inflation in traditional currencies. Let us go through these reasons and the logic behind them:
Diversification Of Portfolio
For the world’s richest, it is inconceivable not to invest their money in stocks to create more wealth. Investing in crypto – especially Bitcoin – is no different. The primary purpose of diversifying your portfolio is to minimize your investment risk. If one of your investments underperforms, the profits from the others will minimize or even cover your losses.
Since Bitcoin’s launch, there has been a stock market crash roughly every three years, with the most recent in 2020. Despite these losses in the fiat market, Bitcoin and other currencies have shown unprecedented growth, only recently having come to a standstill. Even with the current bear market, the rich have been buying more Bitcoin in anticipation of the prices going up sooner or later.
Unlike fiat currencies and physical assets, cryptocurrencies such as Bitcoin are exponentially harder to freeze or restrict access to, especially if the assets are stored on a physical wallet or a decentralized exchange. As part of the sanctions placed on Russia, governments urged centralized exchanges to ban Russian wallets from accessing their assets, but the overwhelming majority of exchanges refused to do so.
Unlike banks and other traditional financial institutions that are completely centralized in nature, crypto exchanges stood steadfast. Since cryptocurrencies like Bitcoin are intangible and easily transferred, it is hard to place sanctions on them or regulate their flow.
Measures Against Inflation
Since the start of 2022, there has been an increase in inflation rates on a global scale. Inflation rates have reached 6% and more in some places, creating fear and uncertainty about the general economic health of the system. When it comes to Bitcoin, the coin has a predefined maximum number of tokens (21 million). Just like gold, Bitcoin has a finite supply, and when that supply is exhausted, no more tokens can be minted. As of January 2022, 18.9 million out of 21 million tokens have already been mined.
The number of coins minted per block reduces by 50% every four years, which means that the last possible bitcoin will be generated almost 120 years from now, in 2140. Because of these anti-inflationary measures, Bitcoin is able to provide higher purchasing power per token when compared to fiat currency.
As we’ve seen above, Bitcoin is the cryptocurrency with the largest market cap, and it attracts all sorts of investors, from firms, family offices, retail investors to the world’s richest. Bitcoin’s evolution as a means of payment to a store of value means that even in a bear market like the current one, it is a wise choice to invest in Bitcoin, as seen by the large numbers of the rich doubling down on their crypto investments.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.