Bitcoin (BTC): A Battle Between HODLers and DCFers

Bitcoin (BTC): A Battle Between HODLers and DCFers


Bitcoin symbol and hammer to regulate the cryptocurrency market.

designer 491

There have been some significant changes over the years with regards to Bitcoin (BTC-USD), with early adopters seeing it primarily as a store of value, and people who later moved into the game dealing with it the same way. As a high-growth stock in terms of how it is traded.

In the early years, retail investors were primarily holding positions in Bitcoin, while in recent years it was institutional investors and high net worth individuals who held large positions in the major cryptocurrency.

For years, Bitcoin price action has been decoupled from other asset classes, as HODLers refused to sell because they believed that the Bitcoin price, over time, would explode to the top 6, and possibly 7, numbers.

In this article, we’ll look at how this worked in the early years of Bitcoin adoption, and what has changed since then as a new type of investor enters the market.

Early adopters of Bitcoin

As mentioned earlier, the early adopters were, mostly, retail investors who saw Bitcoin as a store of value outperforming all other assets that were considered a store of value, including gold.

They were HODL, and they still do HODL, which when Bitcoin price starts to rise in response to increased interest will lead to scarcity, reinforcing the upward trajectory of the price, which of course was significant when the bulls were in charge.

One of the questions that needs to be asked and answered is, if Bitcoin is such a powerful store of value, why did the price drop in apparent response to sellers selling their positions? The answer, just because there are so many HODLing investors, doesn’t mean that there weren’t people who were happy to take their profits and run.

Another factor is that many people get FOMO, and in response they start buying near the top or at the top, when the price starts to reverse, they will panic and sell; These were people with more of a herd mentality than those who actually studied and understood the potential Bitcoin that it represented. This is different from what is happening today as a result of institutional investors taking positions in Bitcoin, even though the Bitcoin price drop is the same.

institutional investors

When those outside the early adopters began to realize that Bitcoin was real, they began to get interested in the new asset class and invest a significant amount in it.

The only thing they put on the table, which I think is misleading, is that they pooled bitcoin with other tech stocks or high-growth stocks, so when the economy worsened and the Federal Reserve announced that it would raise interest rates to fight inflation, institutional investors started selling.

What happened here is that institutional investors used what was called the DCF model to estimate future earnings. At the most basic level, what this means is that as interest rates rise, margins and earnings will start to fall, so they readjust their future expectations for high-growth stocks.

The problem as I see it in terms of using the DCF model, is that bitcoin is grouped with high-growth stocks as if they were in the same pool of assets. I think bitcoin and cryptocurrency are a completely new asset class and should be traded as if they were.

Having said that, it doesn’t matter now. Institutional investors control the price of bitcoin at this time because of the way they handle it, and even if you agree with my assessment, the truth is, for now, the bitcoin price movement is determined by the big players.

What’s all about the battle

When I talk about the battle between early adopters and institutional investors, I mean that there are two different ways of looking at Bitcoin, and how it will be held and/or traded in the future will be determined by what will emerge after the Federal Reserve raises interest rates as inflation drops to target levels.

Then, as Bitcoin becomes more adopted, will new investors who will take a position in it consider it a store of value, or will they combine it with high-growth stocks?

My idea is that Bitcoin will once again be embraced as a store of value. The reason is demographics. Millennials are the primary investors in Bitcoin, very familiar with it and favored by its potential as an alternative to the US dollar and gold. Over time, they will control which direction Bitcoin is taking. This trend will be a store of value and, possibly depending on the implementation of the Lightning Network, a way to purchase goods and services on a daily basis.

lightning network

For the purpose of this article, I’m not going to take a deep dive into the Lightning Network. As most of my readers know, it was designed to dramatically increase the speed of Bitcoin transactions when used to acquire goods and services at the point of sale.

The reason I bring it up here is because there are those in the Bitcoin community who think this would be more of a catalyst than a store of value.

There are not many investors who consider this the primary incentive for bitcoin, but when the Lightning Network is more easily adopted and some major retailer or service company starts increasing sales in response to customer preferences, it is easy to see companies scrambling to include bitcoin as a fiat option. If that happens, and when it does, the price of Bitcoin could soar to levels that even the most ardent speculator can’t imagine.

I am introducing this to show that there is a third element that is important to the Bitcoin narrative, but that it will not be an immediate factor in how investors will evaluate Bitcoin in the near term.

conclusion

The reason why it matters how Bitcoin is presented is that different types of investors will hold or trade it based on this selection.

If viewed as a separate asset class, it would be seen primarily as a store of value, which would eventually decouple from other asset classes, as it has in the past, and again start another bull run that would, in my opinion, outpace previous highs, substantially Almost certainly a large amount.

As for institutional investors, they will come back again when the economic conditions are favourable, and when they do, they will be a powerful catalyst for a bounce in the bitcoin price.

The difference will be that Bitcoin will break apart again and will outpace high-growth stocks that the big players will also return to, according to my thesis.

The bottom line is that we should be careful not to fear our positions in bitcoin and regret it for years. Bitcoin is here to stay. It’s still in the early years of its growth cycle, as measured by the speed with which the internet grew when it started being embraced by the masses, and once the Federal Reserve finishes raising interest rates and inflation is low, I think we’ll see a bullish Bitcoin market that will rise to what is Far beyond what we’ve already seen.

Even if institutional investors have held control of Bitcoin price movement for years, the good news is that investors will continue to enjoy a significant upward movement in the price, even if they fail to decouple from other high-growth assets.

I don’t think that’s how it’s going to go, but when you win the header and end up winning, all that’s left to know is the size of the rewards.



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