Of all the financial news stories that made spectacular headlines in 2020, Bitcoin reaching a currency exchange value of $20,000 in mid-December truly stands out because of its historical significance. The last time Bitcoin reached such an astonishing exchange rate was during mid-December of 2017, and then it took another 12 months for it to plummet all the way down to $3,200. The ongoing Bitcoin rally has a lot to do with speculation, flight-to-safety trading strategies, and the arrival of Wall Street investors on the cryptocurrency markets.
Cryptocurrency as Compound Interest Commodities
Compound interest investors have mostly stayed on the sidelines of the Bitcoin craze, but this is not surprising; after all, fans of compounding are known to be risk-averse, and they are more likely to gravitate towards blue-chip stocks and conservative financial instruments. Respected compound interest investors such as Warren Buffett prefer to stay away from Bitcoin and other digital currencies, and this decision partly stems from the wild volatility they see in the markets. Even technology entrepreneur Bill Gates, the billionaire co-founder of Microsoft, confessed that he had sold some Bitcoin token he was given as a birthday present because he considered digital currencies to be in a protracted bubble state.
Bitcoin has outperformed not only Wall Street but also many compound interest portfolios
Gates and Buffett make correct observations about Bitcoin and the market where it trades; however, the meteoric rise of some digital currencies is undeniable because they have become investment commodities. The exponential growth of Bitcoin has not been gradual, but it has outperformed not only Wall Street but also many compound interest portfolios. If you are into compounding, you can certainly invest in established digital currencies, but the last thing you should do would be to engage in the “buy low, sell high” strategy that many Bitcoin traders follow.
Average investors may not be able to shell out for one Bitcoin token when it is trading at $20,000, and they really shouldn’t. The compound interest approach to cryptocurrencies would be to acquire a fraction of Bitcoin, which is called a satoshi and is equivalent to 0.00000001 BTC. In mid-December 2020, 10,000 satoshi were worth $2.34, which is a more reasonable entry point for most investors. If you apply the disciplined contribution strategy of compound interest to acquiring and accumulating satoshi on a monthly basis, you would gradually build a nice BTC position that could turn profitable in the future.