1- Bitcoin was a response to the 2008 financial crisis
You were probably already born and you may remember the 2008 crisis, considered the worst financial crisis since 1929.
The 2008 crisis began due to real estate speculation in the United States. It was the so-called bubble, caused by a significant increase in property values. The rise in prices led to the collapse of the sector, as the overvaluation of real estate was not accompanied by the financial capacity of citizens to bear the costs of their mortgages. With the increase in interest rates, mortgages ended up not having the expected liquidity, leading to the risk of default on high-risk mortgage loans, also called subprime .
The crisis caused some people to trust Bitcoin more than the conventional financial system, because “real money” proved to be unreliable. The Bitcoin white paper was published by Satoshi Nakamoto – creator of the cryptocurrency who used this alias to remain anonymous – on a cryptocurrency forum in 2008. According to Satoshi (who is yet to be identified), Bitcoin is “a purely peer-to-peer version of electronic money that allows online payments from one party to another without going through a financial institution.”
2- Decentralized currency
Bitcoin does not belong to a government or any company. Bitcoin is a currency and also a payment system.
Bitcoin works like regular money, just like the dollar, euro or real, but it is not a currency linked to any government or bank. Transactions made in Bitcoin are mediated by computers around the world, called “peer to peer” or peer to peer (P2P) transactions. Mining is the process of validating transactions, and the users who validate are called miners. The incentive to keep the network up and running is that once the transactions are validated, miners receive bitcoins as a reward.
3- Cyclical assets
Every 4 years, rewards for miners are halved, which influences Bitcoin prices.
Halving (from the English “Half”, which means half) is the process that takes place every 4 years and which halves the reward generated by the network for the work of miners. This process influences the amounts of new coins circulating in the market, which by the law of supply and demand, interferes with the price of Bitcoin.
Every 4 years, once the Halving has taken place, Bitcoin enters a bullish cycle. One of the reasons for Bitcoin's historic highs in 2021 was the last Halving that took place in 2020. As it is a cyclical asset, it is important not to fall into the illusion that Bitcoin will go up forever in a straight line: this understanding of the economic cycle allows for a better asset allocation.
4- Scarcity and long-term appreciation
Technical project details
Unlike fiat currencies like the dollar, euro or real, Bitcoin is a digital currency that cannot be infinitely printed. One of the properties of Bitcoin is its scarcity. In all, there are only 21 million units to be mined. Like any scarce asset, this emissions cap implies long-term appreciation, although this appreciation is not in a straight line.
5- Divisibility
An essential property of Bitcoin as a form of payment.
At the time of writing this text, 1 BTC is equivalent to $19,283 (USD).
Bitcoin’s recent all-time highs can lead to doubt that a person needs to have, for example, more than $ 19,000 (USD) to invest in the asset. However, one of the properties of Bitcoin is its divisibility: it is a currency divisible up to 8 decimal places. Thus, it is not necessary to buy 1 whole bitcoin. It is possible to invest in fractions of bitcoin (0.00000001 BTC, for example). Exchanges are cryptocurrency trading platforms and they stipulate minimum application amounts.
6-Volatility
Bitcoin is a volatile asset and its price can fluctuate up or down by significant amounts in a single day. From a currency development perspective, an asset can take years, decades, or even millennia to develop into a store of value, medium of exchange, and unit of conversion. It would be an unrealistic expectation to think that Bitcoin would not face any volatility with only 12 years of existence.
7 - institutional
In every bullish cycle, there is an increase in institutionals on the Bitcoin network.
The orange lines in the chart below indicate the entry of companies, investment funds, treasuries and institutions linked to the Blockchain, which is the Bitcoin network. In every bullish cycle, there is a significant increase in this movement.
8- Long term
What will happen when the last Bitcoin is mined? Will the network cease to exist?
The expectation is that the last Bitcoin will be mined around the year 2140, but that does not mean that the network will cease to exist. Today, miners are rewarded with bitcoins and transaction fees, which correspond to 3% of the total rewards.
When the last Bitcoin is mined, these fees will amount to 100% and increased network competition will lead to an increase in these transaction fees. The network validations will continue to happen, because the mining incentive will continue to exist.
9 – Currency Development
Has Bitcoin ever developed as a currency?
reserve of value
medium of exchange
conversion unit
Any asset defined by the free market that performs three functions can be considered as currency: store of value, medium of exchange and unit of conversion. The development of these 03 phases can take years, decades or even millennia. The dollar, for example, is approximately 200 years old. Bitcoin is still developing as a store of value and medium of exchange, which implies volatility and corrections in the short to medium term.
10- Indicators
Bitcoin quotes follow the law of supply and demand, devised by Scottish-born British economist Adam Smith in classical economics. This economic concept defines that if there are more products than there are interested in buying them, prices tend to fall. On the other hand, if a product is out of stock, its price tends to increase.
In every Bitcoin cycle, there are people buying, selling, storing and mining bitcoins, which influences prices. Among other fundamental indicators, some metrics that influence the price of Bitcoin are associated with:
Accumulation and distribution of coins
network gains and losses
entry of new coins into the system
institutional entry