The bullish case for bitcoin.
Bitcoin is poised to continue on a parabolic track.
The US dollar is the world’s reserve currency. Bitcoin has not changed that. It has, however, shed light on the depreciation of the dollar.
Bitcoin is a new lens that has refocused our attention on the concept of money and how it works.
Since its inception, the US dollar has experienced inflation.
Inflation is considered a standard part of the monetary system. We expect it and attempt to account for it by beating inflation.
The financial crisis of 2007–2008 reinvigorated a practice of money printing and quantitative easing that had already been utilized throughout the history of the US dollar.
The 2008 financial crisis was a wakeup call.
COVID is the financial crisis multiplied.
The global pandemic created a problem that the US Federal Reserve and central banks decided must be solved using quantitative easing.
Too Big to Fail
The economic powers that be refuse to let the system hard default. In their eyes, the system is too big to fail.
Instead, the solution is a soft default, using quantitative easing.
It’s the FED and central banks acknowledging the US dollar debasement via action, while also revealing their assertion that the end result is worth the continued debasement.
Quantitative easing doesn’t necessary always include money printing. QE can occur by reshuffling existing monetary supply and assets through the sale and issuing of things like bonds in order to “raise” and move capital elsewhere.
In 2020, however, QE was a full-court press effort to resolve the economic problem as quickly as possible, acknowledging the fact that we will be sorting through the aftermath of it for generations.
The gold 2.0 narrative is easy for the average person to understand.
People have some concept of what gold is. They’ve seen it in media and in jewelry and some can even put their hands on it.
Gold is used as a store of value and hedge against inflation. Bitcoin is gold 2.0.
The gold standard no longer exists.
Depending on who you ask, we started leaving the gold standard some time between the early 20th century all the way up to the advent of Bretton Woods.
World wars and the Great Depression further accelerated the US dollar’s detachment to any kind of gold standard.
Gold then turned more purely into a store of value.
Gold still retains several qualities associated with sound money. One of its more vital qualities is that it is scarce, thus making it a strong store of value.
Gold is not finite though. The above ground supply of gold has grown over time and continues to do so.
Bitcoin Is Gold 2.0
Bitcoin possesses qualities that gold does and then some.
There is a fixed supply of bitcoin. There will only ever be 21 million bitcoin in existence. This makes bitcoin far more scarce than gold.
Bitcoin is digitized — a digital gold.
Digitization makes bitcoin more easily accessible, portable, and divisible. Gold is physical, heavy, and harder to divide, making the market for bitcoin arguably more liquid.
Bitcoin also works extremely well as a store of value. The above qualities, combined with the fact that the holder of the digital keys to a bitcoin wallet is the only one who can access it, makes bitcoin an efficient upgrade of gold.
As previously mentioned, there is a fixed supply of bitcoin.
Bitcoin exchanges, both centralized and decentralized, bitcoin ATMs, and peer to peer exchange allow for the purchasing of and transfer of bitcoin. Miners are also rewarded for their effort to uphold the network. Plus, there are a growing number of retail-focused ways to acquire bitcoin.
The supply of bitcoin is becoming more and more limited over time. The principals of supply and demand should drive bitcoin’s price and market cap higher.
A decrease in supply is also built into the bitcoin protocol.
2020 witnessed bitcoin’s most recent halving.
A bitcoin halving is when the reward for mining bitcoin transactions is cut in half, thus further decreasing the available supply of bitcoin in circulation.
Greater education in the bitcoin and cryptocurrency space is occurring. Jumps in price tend to attract more attention. In a way, this helps.
Price increases are an opportunity to educate people paying attention for the first time. A growing market cap also means that there is more incentive in the space to establish companies, non-profits, and academic efforts to further education.
More education around bitcoin leads to greater understanding of money, economic theory, and monetary policy.
The increase in understanding of both bitcoin and the global economic system necessitates conversations around the above mentioned topics such as US dollar debasement.
Greater retail adoption makes bitcoin more accessible.
In the early days of bitcoin, there was one centralized exchange by which you could purchase bitcoin — Mt. Gox.
We all know what happened with Mt. Gox and can guess the implications of having such a centralized point of failure in what ought to be a decentralized system. Since then, more exchanges have popped up.
More regulation and compliance is occurring around these exchanges, legitimizing them.
Along with exchanges have come other forms of retail adoption. Square, PayPal, bitcoin and cryptocurrency merchant reward programs are all examples of ways in retail adoption is growing.
Institutional adoption opens the flood gates.
Just prior to the major institutional moves made by the likes of MicroStrategy, Square, Guggenheim, and MassMutual, we saw major financial names like Paul Tudor Jones and Stanley Druckenmiller essentially giving their blessing to bitcoin as a hedge against inflation.
The question becomes not who will be the next institution to bet on bitcoin, but when?
Greater institutional adoption and acceptance then leads to a conversation about when a small nation state will put bitcoin in their reserves.
Next comes a large nation state, followed by the dominant central banks that play a major role in the world economy.
The above ingredients create a narrative with a probable ending. Bitcoin is primed to benefit from the current state of the global economy.
Once major institutional money floods the cryptocurrency market, there is no turning back and more will follow.
2020 will be studied in history books.
Global pandemic aside, the socio-economic and monetary phenomena that resulted from the year will leave a lasting impact on an already stressed economic system.
Bitcoin is a hedge against that stressed system.
The world’s largest cryptocurrency has entered the zeitgeist. It cannot be un-created. The more it persists (and arguably succeeds), the more its value cannot be ignored.
Bitcoin is on a parabolic track — first it’s gradual, then it’s sudden. We are entering the sudden upswing. With it also comes greater awareness around the ongoing problems of the global economic system.
Bitcoin can provide a hedge.
It ought to also provide a global consensus call to action.