If it wasn't appealing enough to invest in Bitcoin (BTC +1.24%) before, there's now a slew of new reasons to consider buying it and holding it forever.
Specifically, there are at least 20 new potential catalysts in play right now. That makes the coin worth a hearty investment of $5,000, or even more, especially if you're willing to hold it for many years. Here's what the excitement is all about.
CRYPTO: BTC
Key Data Points
Billions of new inflows could be on the way
You've probably already heard that in the U.S. there are discussions about whether to form a national cryptocurrency repository or Bitcoin reserve. It's no secret that if the answer is yes, it would be a major positive driver of Bitcoin prices for years, and possibly forever. And there would be yet another reason to buy the coin and hold it indefinitely.
Governments buying the coin would be good for a few reasons.
First, they tend to have billions of dollars to throw around, so their purchases can directly push prices up. But more importantly, governments (usually) don't make financial moves rashly. That means they tend to retain their investments until there's a policy change, which can take many years. So if they're buying, they're likely going to hold, and that will reduce the number of coins changing hands, inducing supply scarcity that might drive prices up further.
In the U.S., it's not just the federal government considering such a reserve. As of Feb. 14, at least 20 U.S. states are mulling whether to establish state-level Bitcoin reserves.
Texas, Massachusetts, and Florida, among other economic powerhouse states, have taken up the question. A few others are still drafting such legislation and may introduce it later. In total, per Van Eck analyst Matthew Sigel, the states debating these bills could generate buying pressure on the order of $23 billion by the time all their purchases are completed.
That would make for a whopper of a catalyst for the coin, to say the least -- and it isn't experiencing any shortage of those lately. It would also be an undeniable sign that there's real demand for this asset among the most serious and most conservative classes of investors.
It'll take time for these buys to drive prices higher
If you're looking for a sign that Bitcoin is worth investing $5,000 in, this is probably it. Still, it's important to keep these new developments in context, and there's no excuse to abandon sound investing fundamentals with cryptocurrencies.
States that decide to buy Bitcoin will probably not simply pay fair market value on the day legislation passes. They'll likely use dollar-cost averaging (DCA) to amass their desired position size, making regular purchases at various price points. Be aware that the beneficial price impacts of states or governments buying the coin will be felt over time, not all at once.
Furthermore, it's obvious that states aren't buying Bitcoin as their only investment. They almost certainly have diversified portfolios complete with more conservative financial investments like stocks, bonds, and properties. If you decide to invest in Bitcoin with your hard-earned cash, you should follow these same principles.
Don't make a lump-sum purchase; make a lot of small purchases over time with a DCA strategy. Don't make Bitcoin your sole investment either; make it one of the riskier elements of a system calibrated for your financial goals and means. And don't sell your coins the moment there's some volatility or the price drops. Fixating on the day-to-day performance of the coin will make holding it harder.
And last but not least, do not forget that it is very possible for Bitcoin's price to go down and never go back up. It isn't very likely that will happen. But if it does, you'll be in fine company, considering that there's a good chance your state's finances will suffer right along with you.
Of course, the more likely scenario is that states buying Bitcoin will send it upward. Just remember, if you hold this asset until the cows come home, you'll have a much better shot at generating real wealth.
