Bitcoin reached a new all-time high in 2021 and has shown once again the resilience that has seen it bounce back from every crash it has suffered in the past ten years. With its ability to regain momentum time and time again, Bitcoin has overcome the “bubble” label and is becoming increasingly popular with institutional investors.
Gold was previously the anti-fiat, which individuals and institutions saw as a highly reliable store of value. After the 2008 crash, trust in governments decreased, and Bitcoin presented new financial independence opportunities, as no centralized bank could control it. The limited supply and the perception of an anti-governmental currency increased the value of Bitcoin exponentially, transforming it into the digital gold of the new millennium.
A Switch From The Gold Standard To The Bitcoin Standard
Governments and the current economic model show their flaws time and time again. Governments are entitled to print money to support the economy and make full use of this power in some instances, such as the 2020 pandemic. However, money does not grow on trees, and with the US and EU increasing cash flow to support their economies, fear of inflation is becoming more prominent.
The previous standard as an anti-fiat currency was gold. It served as a haven for investors when the world was facing economic turmoil. Unlike gold, which increases in value when fear settles in, Bitcoin prospers when the world economy is in full force. Data from ByteTree Asset Management Ltd. shows investors are reconsidering Bitcoin as a new store of value similar to gold and investment funds are holding both BTC and gold as they slowly identify the value of the cryptocurrency.
The current economic landscape has pushed people to take more interest in Bitcoin due to its scarcity. Similar to gold, Bitcoin becomes more valuable and interesting to investors when fear about inflation is rising. However, researchers found that spikes in Google searches do not indicate a spike in price. What they discovered is that Bitcoin’s price is related to bond yields, and the recent pause in its rise (which has already seen it double since the start of the year) directly correlates to a sideways momentum in the yields market.
Institutions such as Tesla, Visa, and Microstrategy have pushed the price of Bitcoin even further. Acceptance of Bitcoin as a payment method has created a shift in market perception, even though BTC payments are, for some, ludicrous – remember the guy who used 20,000 BTC to pay for a pizza?
The price of Bitcoin is still fluid, and despite being highly correlated to market sentiment and movements in bond yields, Bitcoin has the potential to reach titanic heights. Still, the price of anything scarce depends on the perceptions of those who invest in it.
On the Flipside
- Bitcoin’s halving and the longer period required to reach the maximum number of mined Bitcoins bring forth an environmental issue due to the high costs of energy usage.
- A lack of Bitcoin usage could decrease the success of integration into the mass market, and the technology might fail.
- Unlike gold, a tangible asset, Bitcoin has nothing to fall back on and could create unprecedented risks for investors.
A Bitcoin Popularity Contest
Bitcoin’s main flaw is its volatility, which is an issue for investors who have been reluctant to risk their portfolios on an asset that is still not fully regulated. However, recent developments with a decrease in price volatility and consistent bounce backs to new highs have paved the way for banks such as JP Morgan to offer investment possibilities.
Additionally, Bitcoin exchange-traded funds (ETFs) have become a highly talked about subject in recent years. Valkyrie Bitcoin Trust filed a new application with the SEC to include Bitcoin ETFs at the New York Stock Exchange. A favorable decision by the SEC will mean that Bitcoin will have a lower entry barrier, which, in turn, could create more stability in the market and further increase Bitcoin’s position as a new store of value.