As COVID-19 has gripped global society for most of the year, the future of the global economy is increasingly uncertain. Therefore, investors around the world have increasingly sought new ways to protect the value of their funds.
A number of analysts believe this to be a major contributing factor to the rise in the price of Bitcoin in recent months. After struggling for months to break the $ 10,000 mark, BTC has recovered through an extraordinary bull run: In just a few months, BTC has gone from around $ 10,000 to over $ 18,000 (and up.)
However, while economic uncertainty appears to have fueled interest in Bitcoin as an alternative asset, Bitcoin’s status as a true “safe haven” or “reserve” asset is questionable at best.
After all, Bitcoin’s market cap is only $ 3.38 billion, and as Blockchain.com head of research Garrick Hileman said Finance tycoons Earlier this week, “Bitcoin will likely need to reliably hold a value in excess of $ 50k per coin, equivalent to a total market value of over $ 1 trillion” to truly be considered a global reserve asset.
Still, while there may be a long way to go, Bitcoin’s value is steadily increasing; and, although progress is slow, BTC appears to be gaining ground as a possible reserve asset, perhaps, in the words of Alex Mashinsky of Celsius, as a kind of “doomsday insurance policy”.
At its core, “Bitcoin is a good hedge against inflation”.
Indeed, “in a Covid world, there is no safe haven,” said Bill Noble, Token Metrics Chief Technical Analyst, in an email to Finance Magnates.
However, with that said, “Bitcoin is a good hedge against inflation” and, as such, can be seen as a store of value.
Chief Technical Analyst at Token Metrics.
“If a liter of milk goes up 40 percent and your wages go up 20 percent, how can you afford milk?” Noble said. “Consumers need a currency that can rise to keep up with inflation.”
In other words, “Bitcoin helps protect holders’ purchasing power,” Noble commented, explaining that he is convinced that “the term ‘store of value’ does not go far enough to fully explain Bitcoin’s value proposition.” .
Grayscale: “Of people who have recently invested in Bitcoin, nearly two-thirds said the pandemic affected their decision to invest in Bitcoin.”
In fact, Grayscale CEO Michael Sonnenshein told Finance Magnates that “for many people, the instability created by COVID-19 and the resulting economic fallout was a key factor” in deciding whether or not to invest. in Bitcoin.
“We recently interviewed US investors. Of the people who have recently invested in Bitcoin, nearly two-thirds said the pandemic affected their decision to invest in Bitcoin, “Sonnenshein explained. However,” even when you take into account people who don’t invest in Bitcoin, about 40% of US investors said the pandemic made Bitcoin more attractive. “
Sonnenshein said this growth in attraction has been true for both institutional and retail investors: “Recently, you’re seeing companies like Square buying millions in Bitcoin to hold as a reserve asset,” he said.
“MicroStrategy was another company in the news to do this. Paul Tudor Jones recently announced that he is seeing enormous value in Bitcoin. And not to honk too much, but in the last quarter alone, we raised more than a billion dollars from the class of institutional investors in our crypto funds. “
Indeed, “more and more institutions are beginning to understand the role of investing in Bitcoin in the long term. There are many strategies you can use to hedge your risk exposure, such as averaging the dollar cost that you buy some Bitcoin at regular intervals, “he said.
“People and institutions are making investment decisions in a world where everything is increasingly digital. There seems therefore to be a growing interest in the idea of investing in something that is verifiable scarce, completely digital, without any central government intervention. I believe this is why Bitcoin is perhaps getting a second or third look today. “
“While calling Bitcoin a ‘safe haven’ is irresponsible, I think Bitcoin has some merit and more potential as an asset than the Store of Value.”
But what does the rise of Bitcoin as a possible “reserve” asset mean for the future of the financial world?
David Smooke, founder and CEO of Noon hacker, he also told Finance Magnates that the change in the narrative around Bitcoin has important implications for the future of the digital financial world.
“While calling Bitcoin a ‘safe haven’ is irresponsible, I think Bitcoin has some merit and more potential as a store of value asset,” he said. “We are at the beginning of the digital cash revolution. Just as gold is the mascot of the Fed’s financial system, Bitcoin is the mascot of the rise of digital money. “
While Bitcoin may be a symbol of “digital money”, Smooke explained that Bitcoin itself will likely never play the role of a transactional tool that can be used for everyday purchases: “ubiquitous digital money may be supported by Bitcoin, but Bitcoin itself is not efficient enough to handle the volume of micro-transactions that a mass adoption digital cash system would require, “he said.
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Bitcoin: “No competitive barriers to entry”?
However, David Dorr, co-founder of Coro Global Inc., believes that Bitcoin cannot really be described as “digital gold”, nor: “Bitcoin is not digital gold, no matter how much people want to believe it,” he said.
“Other than its inability to have competent enough speeds to function as a medium of exchange, it has no obstacles to competitive entry,” he explained.
In other words, “gold is a physical element on the periodic table. There are only a handful of precious metals on the periodic table, and unless a meteor hits the Earth and introduces a new precious metal to the periodic table, there is a real physical limit to competing with those precious metals, “he said.
“Bitcoin, although it may be limited in the number of tokens, has no obstacles to competition. This is why there are now over 100,000 cryptocurrencies. “
Bitcoin “has its unique place in the SoV asset basket and nothing can replace it.”
However, Ashu Swami, Apifiny’s Chief Technical Officer, pointed out to Finance Magnates that while “there is no perfect shelter or asset of value (SoV),” Bitcoin “has its unique place in the SoV basket of assets and nothing does. can replace.
“This basket has traditionally contained assets such as bonds, munies, income stocks, index futures, gold, US treasuries and cash,” Swami said.
He explained that in fact, whether or not Bitcoin can be considered a store of value asset largely depends on the investor’s context and timing: “eligibility depends on the investor’s profile, investment horizon and macro conditions.
“For example, cash is the perfect refuge when investors are waiting for the market to find a direction, but it is a bad long-term choice due to inflation,” Swami siad. “Central banks have a huge appetite for US Treasuries to settle trade imbalances, but to cover that remote possibility of a dollar crash, they also hold a good deal of gold and other currencies.
“Bitcoin has emerged as the safe haven of the last resort. Just like gold, bitcoin derives its value from the scarcity of supply, ”Swami said. “As the national debt of the United States piles up and the government shows no abatement in the currency printing, the demand for a dollar and Bitcoin hedge increases.”
Bill Noble of Token Metrics also commented that “[…] gold bugs can cry all they want, but Bitcoin is the new digital gold, “he added, (editor’s note: rather cheeky.)” If institutional investors don’t have Bitcoin in their books by the end of the year, they will make him unemployed … and unemployable. “
Mr. Noble sees bright things in Bitcoin’s future: “Companies will start paying people in Bitcoin as a form of incentive compensation,” he said. “Bitcoin will likely be used to purchase large items. At the retail level, companies like Coinbase will likely attach a debit card to cryptographic investment accounts. This type of program will give consumers more dollar purchasing power.” as the cryptocurrency in their account increases. “
Bitcoin as a “store of value”: the power of storytelling
Anton Altement, CEO of Osom.Finance, also pointed out that, almost regardless of its tangible qualities, whether or not Bitcoin is considered a “ store of value ” at any given time has a lot to do with perception. audience and narrative.
Indeed, the “store of value” is not an “inherent quality” of any of the things that society collectively agrees to be valuable, Altement said.
“Why are diamonds or gold (or wine or art or watches) used to store value?” churches. “Because we collectively agree that they have value. It is more a social pact than something that is linked to the intrinsic nature of a good “.
For example, “seashells were monetary instruments in some parts of the world, but they aren’t anymore,” he said. However, “inherently, they haven’t changed,” he stressed; rather, the collective agreement on what they represent has changed.
“There seems to be growing recognition that Bitcoin is a security protocol, producing a rare commodity. And we seem to collectively acknowledge that there is value in that security and rarity, especially in an age when it seems like fiat money is infinitely printable, “continued Altement.
“It is undeniable that some see Bitcoin as a store of value (look at MicroStrategy, they did not suddenly decide to start playing with their treasure) and that the proportion of the world with that view is growing.”
This will likely continue with the growing prevalence of central bank digital currencies (CBDCs): “Discussions around CBDC are only raising awareness of ‘code as value’ and even though they have little in common with BTC, they familiarize people with the idea. of code as a value, “he said.
What are your thoughts on Bitcoin as a safe haven or reserve asset? Let us know in the comments below.
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