Bitcoin: Why This Time is Different
Bitcoin has been a polarizing topic of discussion in the finance world in recent weeks. Price has surged near the 2017 all time highs but what makes this time different? The recent surge has been notable garnering mainstream attention, but does it deserve yours? With the recent announcements from square and PayPal, and corporations like microstrategies, I think it does. Bitcoin and cryptocurrencies are widely still experimental. In terms of practicality and everyday utility, but with the recent surge in the expansion of the money supply by central banks around the world and the asset inflation that has come with it, what bitcoin offers as a reserve asset is this; a one of a kind digital cyber bank built upon a reliable payment system where no individual or government can infringe upon its monetary policy. With interest rates near zero, stocks trading at breathtaking multiples, and real estate prices at all time highs the demand for bitcoin should not come as a surprise. Central banks have coordinated to inflate a debt bubble that simply can’t be undone and the bi-product of that is a market thirsty for liquidity but lacking innovation. What bitcoin offers is a way to opt out of a modern banking system designed to breed inflation in assets that create wealth, making it more difficult for the average person to participate in owning these assets. Cryptocurrencies have the potential to become a new financial ecosystem controlled by the public that owns them. We see this in new lending protocols in the space with the rise Of Defi and the use of cryptocurrencies like bitcoin as collateral for debt obligations (BlockFi). The issue with current monetary policy is it is limitless due to the lack of collateral. Nothing exists to enforce the repayment of existing corporate and sovereign debts so the solution is to create more debt to support existing debt which creates rampant inflation in financial assets and living expenses and that becomes a serious problem if unemployment rises and wages stay stagnant over an extended period of time. What an allocation to bitcoin can do for your long term portfolio is not only secure your wealth against the debasement of fiat currencies, but since we’re still in the discovery phase and the true value of bitcoin remains to be seen, it also serves as a call option on a new digitized financial system that has the potential to supercharge the legacy system we are currently in. The real question for the next 1-3 years is this; in a banking system with a limitless money supply, what are individuals and corporations willing to pay to keep their reserves in the world most secure, and transparent digital bank owned and operated by it’s currency owners, with a true supply cap? My guess is a lot.
