It’s fair to say that this year’s bitcoin rally is, essentially, the byproduct of a failing system. Rock bottom interest rates, unprecedented quantitative easing, trillions of dollars in ever-mounting debt, and a global recession have all provided bitcoin the impetus to get a leg up. But it’s far more than just price speculation; bitcoin doesn’t just represent an opt-out clause of a failing financial system; it’s an alternative system. And nearly everyone is starting to realize it.
Throughout 2020, institutional players have staked their claim to bitcoin‘s finite supply, throwing their weight behind the pioneering cryptocurrency. After belatedly realizing the pitfalls of the traditional banking sector and its stranglehold on fiat, those who once distanced themselves from the once-maligned bitcoin raced back.
Kicking the first of the dominos down in May, Wall Street Veteran and billionaire hedge fund manager Paul Tudor Jones hailed bitcoin as the “fastest horse” in an inflationary race to the bottom.
Needless to say, Jones was proven right. In the time since his call, bitcoin has appended 120% to its price point, more than outperforming gold—the traditional hedge against the kinds of macro risk the global economy currently faces—as well as notable stock indices including the S&P 500 and the Dow, whose growth pales in comparison.
In August, bitcoin gained its first publicly traded holder in business intelligence firm MicroStrategy. In a rationale similar to Jones’, the firm wrote fiat off as doomed amid unsound economic conditions and adopted bitcoin as its treasury reserve instead. By the end of September, MicroStrategy had swapped out $425 million for BTC.
As of today, there are 23 public and privately traded companies holding an aggregate total of 842,364 BTC—amounting to approximately 4% of bitcoin‘s current supply.
Displacing the US Dollar
The institutional pile on hasn’t gone unnoticed. This week, PayPal‘s CEO dubbed cryptocurrency a tool for “inclusion” that could help foster “financial health.” And Wall Street even landed its very own crypto price indices. But it was Larry Fink, CEO of the $7 trillion asset management firm BlackRock, who truly captured the zeitgeist around bitcoin.
On Tuesday, during the Council on Foreign Relations’ digital symposium, Fink argued that Bitcoin could shed its volatility and become a global market to rival the US Dollar.
“Having a digital currency has a real impact on the US dollar. The digital currency makes the need for the US dollar to be less relevant. And I’m not talking about America, I’m talking about international holders of dollar-based assets,” said Fink.
At present, per statistics from the IMF, the greenback still dominates. USD makes up 60% of foreign exchange reserves within central banks and is used in 80% of all trade finance transactions outside of the US.
But, as Fink acknowledges, the tide is rapidly shifting.
You only need to look as far as Paypal’s foray into the crypto market to see that banks may soon have no option but to adopt bitcoin. With the payment monolith’s Bitcoin buying and selling service in full swing come 2021, and Kraken exchange’s application to become a hybrid crypto bank approved, traditional institutions are looking at stiff competition unless they get their act together fast.
The OCC’s nod of approval for banks to start custodying cryptocurrency earlier this year made all the difference. Central banks now have inroads to profit off bitcoin and make up for the profits they missed out on. And if they don’t do it soon, they’ll risk being left behind entirely.
That’s because people worldwide are already signaling bitcoin as their reserve asset of choice.
Voting with Bitcoin
According to Marcus Swanepoel, head of bitcoin exchange Luno, the bull run is far from institutionally-led. In fact, volumes suggest that its retail adoption within emerging markets is pushing bitcoin‘s price point.
For Swanepoel, this is more than simple speculation; these emerging economies are voting with their money for a safer financial future.
This isn’t anything particularly new. As touched upon in a previous piece, trading volumes for peer-to-peer bitcoin exchanges in Africa and other low and middle-income economies have breached all-time highs in recent months.
In countries where national fiat currencies are even more devalued than the US dollar, bitcoin, with its fixed supply and inclusionary traits, offers a desirable alternative—an alternative that is becoming more appealing to investors in the west.
According to data compiled for Reuters, weekly net inflows of bitcoin to platforms serving predominantly North American users have surged 7,000 times in 2020, to over 216,000 bitcoin worth approximately $3.4 billion in mid-November.
The narrative continues to pervade, fiat, particularly the greenback, is on its way out, and bitcoin presents itself as an extraordinarily innovative and rational option to take up the mantle as the global reserve currency.