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asthfghl
Greetings, my fellow
The crazy world of global finance has entered yet another debt spiral, probably the biggest one in decades, and investors are trying to hedge their options. Turned out all those early enthusiasts, who for years had predicted that the bitcoin would become a safe haven for the stumbling ship of the financial world, have actually come out right. The problems as they were 3 or 7 years ago are still here of course, but today's picture is rather different for us to just keep ignoring the new big player at the global financial scene.
We live in world where the 3,000-year history of gold as a bulwark against inflation and the often economically inexplicable actions of governments is being challenged, to put it mildly. Financial security seems to have a new name. Or does it!?
So how did we get here? When it became clear that the coronavirus was engulfing the world and would sooner or later threaten the health systems of most countries, the governments began to prepare for some of their worst days. Mass lockdowns began in early 2020, and entire economies were brought to their knees. Almost all global players have virtually sacrificed economic prosperity in an attempt to save people's lives, but even then it was clear cost of this move was going to be too steep. Therefore one by one, the various authorities demonstrated their concern by starting to pour huge sums of money into struggling businesses, households and entire industries.
Many countries have taken the most logical step - a tax relief for their citizens, but still the pouring of huge financial resources continued. Thus we came to a situation in which the central banks had no choice but to keep interest rates low, buy government and corporate bonds, and turn on the money printers to maximum speed, and borrow money like crazy. All these actions were wrapped up in nice believable terms such as "quantitative easing" and other financial jargon meant to provide reassurance for both investors and the general public.
We've reached a unprecedented point in history. Take the first shared debt of the European Union and the fantastic trillions of euros that it intends to distribute among its members for example. Central governments slowly but gradually have begun to take over ever wider shares of the economy, and sweeping interventions continue to this day. The tragedy of this whole crisis seems to be beginning to take us back to a world where the state would once again manage a large part of economic life, and history has shown us that such a tasty pie is usually not given up without a fight.
But let's go back to the crisis - markets collapsed, stocks and other assets fell, and US crude futures hit a unprecedented bottom and began trading at negative values. Granted, as a result of sweeping state interventions, the situation seems to have started to stabilize now somewhat, and since then we've seen an (inexplicable) phenomenon - the markets totally ignore the real economy, the loss of jobs, production capacities, collapsed supply chains. Major US indexes ended last year at a record high, as if we were all in an economic and fiscal heaven!
The end of that crazy year and the beginning of the current one, however, began to carry the scent of a ghost that many investors can not stand. INFLATION. It is what happens in the process of constantly generating money and persisting with the attempts of governments to keep interest rates low (below the level of inflation) in order to curb their own fantastic avalanches of debt.
It was at this point that the first sign of the coming exponential wave in the value of the bitcoin appeared. The currency initially did collapse last March, as did all other assets, but has not stopped growing since. In recent weeks and months, the numbers show that the bitcoin brings an unrealistic 75% yield per month!
So what are the reasons for this surge? Of course, the first one is the looming ghost of inflation and the fear of its imminent return, whether or not this does occur for real. The thing is, markets largely work on hopes and fears. The Bitcoin is a currency that has never been intended to reflect the real state of the economy, nor to be a benchmark for the fiscal stability of central governments. Although it was created as a means of trading, enthusiasts have always mainly considered it as a means of protection against the statist inclinations of governments.
That is why even today almost all analysts compare the bitcoin to gold - a precious metal whose long history is always associated with investment salvation. It is a finite asset - that is, one that is exhaustible and an asset that, because of the general consensus on its value, continues to cost a lot, regardless of the occurring economic cycles. In this context, it is of low volatility and does not create many problems.
Gold is a natural stabilizer of purchasing power and its price has jumped by 40% since 2018. But gold has several problems in the new digital world. For example, it is expensive to store, difficult to transfer across the physical world, easy to confiscate, and too visible. In the context of a stronger impact on the economy, this is by no means insignificant.
Conversely, if we now look at the bitcoin, we'd see that in theory this currency has all the positive qualities of gold, but is spared the downsides. The blockchain guarantees the completeness of the product - there are exactly 21 million bitcoins that can be "mined". That is, according to simple economic theory of demand, each unit of this resource could only become more expensive.
The bitcoin can be "moved" with a single move of the mouse, literally as easy as sending an email. It obviously withstands pressure, and most importantly, is independent of any policies from the central banks and governments. Remember that the goal of politicians is to be re-elected, and the goal of the bitcoin is to create a free and independent financial world. At least in the words of its creator, Satoshi Nakamoto (to this day no one has an exact idea who this man is and whether this is even his real name). At the moment, it must be acknowledged that the idea of making the bitcoin a means for mass payment has been a complete failure.
The only problem seems to be the high volatility of the asset, but in recent months this downside seems to have been exhausted as a negative. First of all, the finiteness of the bitcoin keeps it anchored down to earth, but there's something else. Unlike the previous boom from 3 years ago, now the trade is not driven by enthusiasts - i.e. small players with low levels of liquidity, but by institutional ones. Giant investment funds are stockpiling cryptocurrency, pushing its price to new heights.
However, it is their interest that builds the foundation under the bitcoin. One of the great fears so far has always been that governments will try to eliminate the currency in one way or another, precisely because they cannot control it. However, when institutional players entered this market so abruptly within just a few months, this threat dropped sharply. So the fear of a "bubble" is no longer what it used to be, because too many and too big players would be at risk. The notion of an impending bubble had already been waning anyway, because for 11 years bitcoin movement chart shows, albeit with some deviations, that ever higher peaks are being chased.
The risks of over-regulation have also failed to realize, and some central banks, such as the Federal Reserve, have already allowed digital coin transactions through commercial banks.
As for the future, well... Little by little, the bitcoin is creating a foundation under its feet that can no longer be so easily ignored. And while the problems of volatility and uncertainty will likely remain here for some time, it is now clear that hedging in the hands of investors has a new option, and quite a valuable one at that.
And at a time of such strange macroeconomic circumstances, like extreme monetary policies, public debt bubbling, and absolute anger at the central governments, the bitcoin is offering some new perspective - an almost perfect symbiosis between the benefits of technology and the security of gold.
And if all of this still seems kinda doubtful to you - look at the forecasts made by the giants. JP Morgan has already speculated that the price of the bitcoin could reach a truly shocking $146,000. Some individual investors are even talking about a peak of $400,000.
Whatever happens, and no matter how much the currency curve shifts, the bitcoin is here and it doesn't seem to be going away anytime soon. However, keep in mind that trading is a dangerous game that brings a lot of risk. Most analysts are just speculators, short-term sellers, and the markets have proven they can be too harsh on the careless.
The smartest strategy is always the simplest one: it's always nice to have just enough quantities of an asset so that it doesn't ruin you if/when it collapses, but also enough of it that it doesn't make you eat your own hat when you see it hitting $400,000.
