The current bull market leads to an explosion in price for the largest cryptocurrency. Still, a new bear thesis points to possible problems for Bitcoin down the line.
In physics, critical mass is defined as the minimum amount of material needed to maintain the nuclear chain reaction. What we’re watching, what we’ve been watching in the cryptocurrency markets, is an attempt by Bitcoin to reach critical mass and become that digital medium of exchange the world seems to want it to be. When investors are wondering, will it achieve the massive growth we’re all expecting?
Bitcoin has been in a bull market all year, despite some of the roughest conditions in history, and it has held its ground remarkably well. Institutional interest has increased astronomically this year as the government has opened up avenues for cryptocurrency to enter the mainstream. Everything from savings to digital ETFs to PayPal is getting involved in cryptocurrency because it is faster and more secure than other transaction verification methods.
The stimulus package currently under debate in Washington is a major potential influence to watch for on the bullish side, but representative Maxine Waters and a small coalition of Democrats are working to reign in what they see as a potentially confusing and therefore manipulative market. In the present administration, Trump has said repeatedly that he doesn’t like cryptocurrency, and we haven’t seen much major legislative support, as we might from proactive Democrats who want to tighten up the market.
Despite the unlikeliness of the scenario in which Democrats ascend to control of the federal government and decide to shut down cryptocurrency markets, it is nonetheless an unpredictable situation. Regulation is on the table because it is needed to help eliminate fraud and overt manipulation in the crypto markets, and this stabilizing influence is something that would ultimately send prices higher over the long term.
Despite the obvious need for a more crypto-friendly regulatory environment, the newly minted bear thesis posits that legislation could be counterproductive somehow. Pelosi faced a primary challenge in 2019 that forced her to understand some of the cryptocurrency issues of our time, but the Trump administration’s laxity about who should be able to receive a bank charter is undeniably problematic. The same article points out that self-hosted wallet regulation is unpopular, and ultimately this all adds up to the same final tally: the US is in for a complex legislative reckoning on the issue of cryptocurrencies, and it might be handled improperly.
Still, it’s hard to see this as an entirely bearish situation, with Janet Yellen tapped for Treasury Secretary. The fact of the matter is simply this: if institutional players get involved, and they will have to for Bitcoin to continue to grow, regulation is a necessity and not just an inconvenience. Institutional money eschews unregulated markets.
As challenging as times are, the case can still be made with relative ease that none of these developments on the regulatory side of the situation here will be enough to undo the newfound institutional interest in cryptocurrencies. For one thing, crypto is over $500B in market capitalization, still as that number approaches $1T, as it is likely to over the next few months, if not within the next month, it will become more difficult to do anything with legislation that would jeopardize the function of the networks. It isn’t impossible, just far less likely than ever before.
Additionally, cryptocurrencies are largely decentralized. It is possible that crypto could run afoul of some sort of regulation and still remain a viable medium of exchange. These larger conflicts are likely to remain phantasms from far away, however, so there is little chance of the ultimate showdown ever taking place. Instead, what is most likely is that the legislature will listen to the experts and take an active interest in allowing cryptocurrency to move ahead.
The funny thing about cryptocurrencies requiring consensus to function is that, more broadly, there is little in the way of consensus at all. We have the Bitcoin Bull camp on the one hand, which seems to be growing, and on the other hand, we have all of the skeptics and the folks who haven’t looked into it and everyone who thinks it’s just too complicated.
The technology is becoming more accessible fairly rapidly, but it is difficult to say when it will have done enough to become the popular medium of exchange every cryptocurrency asset ultimately seeks to be. Another media blitz a la 2017 does not seem to be forthcoming, despite the recent setting of a new all-time high price for Bitcoin, but prices remain very high and so does the potential for further appreciation.
The oft-delayed stimulus package is being negotiated again, with December 11 set as a hard deadline because the government runs out of money if a new spending bill is not approved. Pelosi and McConnell are more incentivized to make a deal now than they’ve ever been before, and it seems highly likely that some sort of additional unemployment payment will be rolling out in the next few weeks as a result. In the past, we’ve seen the Bitcoin price surge following stimulus as people struggle to save and earn appreciation on any spare money they can save up during these trying times.
Could this be the push Bitcoin will need to break through the $20k psychological price barrier and run higher? Time will tell, of course, but I, for one, am long BTC on the possibilities here. Additional institutional interest will probably also push the needle where it needs to go. There are too many ways for things to work out in favor of cryptocurrencies today, and not enough ways for them to go wrong.
When Bitcoin hits critical mass, the price will skyrocket and then stabilize at a very high number. The thing is, that high price will be hard to move because there will be so much invested in arbitrage from any angle that people won’t be able to push it around much.
And that’s when Bitcoin goes from speculative asset to global reserve currency.