Bitcoin, time and time again has proven itself to be the most popular, widely used, and secure cryptocurrency that is available right now. Hordes of blockchain and crypto experts and enthusiasts alike swear by the power and reliability that is Bitcoin. Since the crypto boom in late 2017 large multinationals and big businesses have been buying up Bitcoin and hoarding them. Just as importantly, many tech companies, online payment services, and financial giants such as PayPal, Square, JP Morgan, Facebook, Telegram, and many more have expressed massive interest and have even taken serious steps toward entering the crypto industry.
So it is clear, the great crypto revolution that has been cited countless times in numerous books and articles is upon us.
In this article, we wanted to focus specifically on the purchasing of Bitcoin, as its trajectory is a good indicator of how the rest of the crypto industry will react. In essence, whatever happens to Bitcoin, is sure to follow other cryptocurrencies.
Digital Asset Exchange, Gemini Trust Company, and MicroStrategy Inc. are just a few of many multi-million and billion dollar companies that have poured vast sums of money into purchasing Bitcoin. But why is that, what makes Bitcoin so special? What makes it such an attractive investment for these giants?
Why are they buying Bitcoin now?
There isn’t any one answer that can be applied across the board to all the businesses that choose to purchase large amounts of Bitcoin. However, there are a couple of reasons that we can confidently say has a great influence on these companies choosing to invest in Bitcoin.
Bitcoin is a hedge against inflation
Because of the way its protocol works, there are intrinsic aspects to Bitcoin that make people treat it like an asset rather than a currency. Namely scarcity, its ability to reliably store value, and its deflationary nature.
Here are some facts about Bitcoin:
- Only 21 million Bitcoin will ever be mined (the last Bitcoin will be mined in 2140)
- At the time of writing, 18.5 million Bitcoin have been mined
- 4 million Bitcoin have been lost forever
- Bitcoin is mined at a fixed rate (6.25 BTC per block, every 10 mins), the reward halved every 210,000 blocks (roughly 4 years)
- If you had invested $100 in Bitcoin in July 2010 ($0.08 per BTC) it would be worth $13,375,000 at the time of writing
Unlike most fiat currencies, such as the US dollar that has an inflation rate of about 1.5-2% per year, Bitcoin is deflationary, which means as time goes on Bitcoin actually increases in value. This makes Bitcoin an excellent asset to invest in as the value, on average will increase year over year and has a long-term appreciation and therefore a good hedge against inflation. It is a clever tactic for not just big companies, but anyone to invest in Bitcoin due to this factor alone.
Moreover, investing in Bitcoin is a good strategy for capital allocation, which is the process of investing and distributing a business’ resources in order to increase its efficiency, maximize profits, and generate more wealth for its shareholders. The CEO of MicroStrategy Inc. has even stated “Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders.” Even going so far as to “adopt Bitcoin as their Primary Treasury Reserve Asset.”
So, it is no surprise that Bitcoin is so sought after, especially by market experts, the benefits to businesses or companies of any size are numerous. Inflation is a problem that not only businesses but also individuals need to deal with and therefore investing in a decentralized, deflationary asset, that is secured by a vast network of miners is an obvious choice to combat deflation.
Companies are following the shift in market demands
The crypto industry is growing at an exponential rate, Q1 of 2020 saw 24h trading volumes at an average of $72 billion. This leads to the second reason why big businesses are making the shift to cryptocurrency and therefore buying up Bitcoin: as more people adopt cryptocurrency, more merchants and businesses must follow to accommodate this trend.
One example of this is the online payments giant PayPal looking to enter the crypto payments industry. Following the success of CashApp, who generated $306 million of revenue in Q1 of 2020 from Bitcoin alone, it was clear that the online payments industry is looming over a crypto revolution. This is what insiders say prompted PayPal to start the process of integrating crypto transactions into their services.
PayPal has hinted at soon offering its users direct sales, storing, and exchanging of cryptocurrency to capitalize on the market’s demands. With PayPal and its subsidiary Venmo having 325 million and 40 million users respectively, this could open the way for almost 400 million new users to utilize cryptocurrency. More information regarding PayPal and the online payments industry making a transition into crypto can be read here.
In addition to this, credit card behemoths, Visa and Mastercard have been working closely with crypto institutions, companies, and exchanges to provide its users with access to crypto storing and transactions. At the time of writing, hundreds of crypto applications, exchanges, wallets, etc. accept Visa or Mastercard as payment for their services, thereby allowing their users to purchase cryptocurrency using their credit or debit card.
Furthermore, dozens of crypto services allow the user to pay for goods and services with crypto via their Visa or Mastercard. The services behind this automatically convert the user’s cryptocurrency into fiat, meaning users can swipe their card at the point of sale without hassle.
So, because there is such a massive and eventual shift to crypto, big businesses see great value in stockpiling cryptocurrency such as Bitcoin for when the blockchain revolution comes and mass adoption occurs.