The unfolding of COVID-19 continues to rule global financial policy, which means that further stimulus is likely on the way, not just in the United States, but beyond as well. Since October of last year, all sorts of publicly-traded institutions have bought into Bitcoin, engendering sustained growth that crypto’s leading asset has never experienced before. Yes, in 2017, it rocketed to $20,000 a coin, but back then, the key driver for adoption was speculation by a wide swath of average(non-institutional) investors.
This time, the evidence does indeed point to things being different.
Why 2020 and Beyond Herald a Paradigm Shift for Bitcoin
As Bitcoin continues to rise over the long-term, the thesis that the bulk of institutions have adopted has remained stoically constant. To them, the key value drivers for Bitcoin are that it is far more portable than gold, its supply is limited forever by its code, and it can’t be manipulated by any single institution or government, or even a coalition of them, due to its decentralized structure.
Institutions, led by Square, Paypal, and Grayscale back in October, have taken these ideas and begun echoing the same case that has been shouted from the rooftops since the publication of Bitcoin’s white paper.
Bitcoin is digital gold.
While that’s been true since its inception, all good things take time. Before 2020, there was almost no major news related to institutional adoption of Bitcoin outside of crypto-native companies and investment firms, but a global shutdown of just about every economy and massive financial stimulus were major contributors to hastening action from those who sat on the fence. As ROI and yields showed yet again just how shaky they can be in the wake of economic crises, MicroStrategy, Massachusetts Mutual Life Insurance Company, Paypal, and others likely realized that they needed a better hedge for just such times.
In other words, they needed an asset that could experience gains even when nothing else was able to. Consider the fact that by December 7th, Bitcoin was up 167% due to the rush of institutions into its space and the change in market sentiment that had brought. From January 1st, 2020 to today, that ROI is now 433.584%, after accounting for volatility. If you compare that number to the S&P500 as well as gold’s 2020 ROIs and the fact that bond yields are largely all still negligible, it becomes all too clear that when the world found itself in the latest economic crisis(that many of us are still in), Bitcoin was the only truly reliable option.
Where does all of this leave us going forward?: Bitcoin in 2021
In the end, I expect 2021 to be largely the same, though as the global economy begins to truly recover, Bitcoin will face its’ toughest test yet as to whether it can sustain explosive growth when other asset classes become attractive again.
For that to happen, institutions will have to start by adopting Bitcoin with the same fervor, simply due to its’ fundamentals. If you follow the opinions of Raoul Pal and others like him, however, then you already know that such a shift is beginning to happen. To understand how and why requires unpacking several high-level concepts, which I’ll begin to do in my next post. Until then, keep in mind that the background for Bitcoin adoption that many are missing in this respect is that it’s in a powerful, sentiment-driven feedback loop.
As always, thanks for reading, be well, and reach out to me any time here or on Twitter.
Disclaimer: None of this is direct financial advice. Invest at your own risk.