Bitcoin (BTC): battle between HODLer and DCFer

Bitcoin symbol and gavel to regulate the cryptocurrency market.


There have been some significant changes over the years when it comes to Bitcoin (BTC-USD), with early adopters seeing it primarily as a store of value and post-gaming ones treating it the same way. as a high-growth stock in relation to how to trade it.

In the early years it was mainly retail investors who took positions in Bitcoin, while in recent years it was institutional investors and high net worth individuals who took important positions in the flagship cryptocurrency.

For years, Bitcoin’s price movement has decoupled from other asset classes, as HODLers refused to sell because they believed that Bitcoin’s price would, over time, explode to the high 6-digit and possibly 7-digit figure. .

In this article, we will look at how it worked in the early adoption of Bitcoin and what has changed since then when a new type of investor entered the market.

Early users of Bitcoin

As previously mentioned, early adopters were, for the most part, retail investors who viewed Bitcoin as a store of value that would outperform all other assets considered a store of value, including gold.

They would have HODL, and still do HODL, which when the price of Bitcoin began to rise in response to rising interest, would result in shortages, reinforcing the upward trajectory of the price, which of course was substantial when the bulls were in charge.

A question that needs to be asked and answered is: if Bitcoin was such a solid store of value, why did the price plummet in obvious response to sellers selling their positions? The answer is, just because there were a significant number of HODLing investors doesn’t mean there weren’t a few who were happy to take their profits and run away.

Another factor was that many people were hit by FOMO and, in response, they started buying near or high, when the price started to reverse direction, they panicked and sold; these were more herd-minded people than those who actually studied and understood the potential that Bitcoin represents. This is different from what is happening today due to the taking of positions in Bitcoin by institutional investors, even if the drop in the price of Bitcoin is the same.

Institutional investors

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

The only thing they brought to the table, which I think is misleading, is that they bundled Bitcoin alongside other high-growth or tech stocks and as a result, when the economy got worse and the Federal Reserve announced it would raise the interest rates to fight inflation, institutional investors have begun to sell.

What happened here is that institutional investors use is called a DCF model to estimate future profits. At a baseline, this means that when interest rates rise, margins and earnings will start to fall, so they readjust their future outlook on high-growth stocks.

The problem, as I see, with using the DCF model is that Bitcoin is grouped together with high-growth stocks as if they were in the same asset cast. It is my opinion that Bitcoin and cryptocurrencies are an entirely new asset class and should be traded as if they were.

That said, it doesn’t matter for now. Institutional investors are in control of Bitcoin’s price right now due to the way they are dealing with it, and even if you agree with my assessment, the fact is that, for now, Bitcoin’s price movement is determined by the big players.

What the battle is about

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 emerges after the Federal Reserve is raised. interest due to inflation falling to expected levels.

Next, with the further adoption of Bitcoin, will new investors who take a position in it consider it a store of value or bundle it together with high-growth stocks?

My thinking on this is that Bitcoin will once again be embraced as a store of value. The reason is demographics. Millennials are the main investors in Bitcoin, are very familiar with it and support its potential as an alternative to the US dollar and gold. Over time, they will dominate the direction Bitcoin takes. That direction will be a store of value and perhaps, depending on the implementation of the Lightning Network, a way to purchase goods and services on a daily basis.

The lightning network

For the purposes of this article, I’m not going to delve into the Lightning Network. As most of my readers know, it is designed to significantly increase Bitcoin’s transaction speed when used to acquire goods and services at the point of sale.

The reason I talk about it here is because there are people in the Bitcoin community who believe this will be a bigger catalyst than it was a store of value.

There aren’t that many investors who see this as the main catalyst for Bitcoin, but as the Lightning Network is adopted more readily and some major retailers or service companies start increasing sales in response to customer preferences, it’s easy to see companies scrambling. to include Bitcoin as an option for fiat. If and when that happens, the price of Bitcoin could take off to levels that even the most ardent bulls could imagine.

I’m talking about it to show that there is a third significant element in the Bitcoin narrative, but it won’t be an immediate factor in how investors value Bitcoin in the short term.


The reason why Bitcoin is displayed is important is because different types of investors will hold or trade it based on that determination.

If viewed as a separate asset class, it will primarily be seen as a store of value, which eventually decouples from other asset classes, as has been the case in the past, and will once again begin another bull run which, to my mind. opinion, exceed the maximums, almost certainly by a large amount.

As for institutional investors, they will come back again when economic conditions are favorable, and when they do, they will be a strong catalyst for the rebound in the price of Bitcoin.

The difference will be that Bitcoin will disconnect again and overtake high-growth stocks where big players will also return, according to my thesis.

The bottom line is that we need to be careful not to be scared of our positions in Bitcoin and regret it for years. Bitcoin is here to stay. We are still in the early years of its growth cycle, as measured by the pace at which the internet grew as it began to be welcomed by the masses, and once the Federal Reserve is done with its interest rate hikes and declining value. inflation, I believe we will see a bull market in Bitcoin that will rise far beyond what we have already seen.

And even if institutional investors were to keep control of Bitcoin’s price movement for years, the good news is that investors will still enjoy a big upward movement in the price, even if it fails to decouple from other high-growth assets.

I don’t think that’s how it’s going to work, but when you win heads and win tails, all that’s left to know is how big the rewards will be.

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