Over the last year, we can begin to see that interest in Bitcoin is once again beginning to rise; encouragingly we are nowhere near the same levels of hype from last time around as you can see from both Google Trends charts below:
Investing or speculating in Bitcoin (depending on which camp you’re in) is a dividing topic, much like politics and religion. On one side, there are those who hear the word Bitcoin and it conjures up the greater fool theory, a volatile intangible asset, an inflated bubble and a mechanism to funnel funds for criminal activity.
On the contrary, we have the Bitcoin evangelicals, preaching incredible growth, unparalleled upside potential, the emergence of a more trustworthy monetary system and a new digital gold. There are of course those who sit in the middle, leaning closer to one side than the other, but for the most part, many traditional investors tend not to get involved.
Despite the divide between those who see the value in Bitcoin and those who see it as more of a risk, the truth is that large institutions are taking note and beginning to transition funds towards a Bitcoin inclusive future. In this article, I’m going to put together some of the macroeconomic factors which have collectively made me increasingly bullish on Bitcoin. These factors should be read in conjunction with each other and not in isolation, as one point often supports or leads to the next.
1. Pandemic panic – We are in unchartered economic territory, the coronavirus pandemic has claimed over 1.5 million lives, increased unemployment and forced businesses to close. Consumers with lower confidence about the future are also spending less money and trying to save more. The IMF anticipates that over 2020 and 2021 the loss to the world economy could exceed $9 trillion dollars, greater than the economies of Japan and Germany combined .
2. Inflation of asset prices - In response to the pandemic, governments and central banks have used a combination of fiscal and monetary policy to slash interest rates and inject trillions of dollars of stimulus into the economy. The below chart shows the amount of fiscal stimulus created relative to each country’s GDP.
Subsequently, we have seen an inflation of asset prices as global stock and property markets reach all-time highs during one of the fundamentally worst economic situations in history. While economies and jobs are eventually expected to recover, the amount of money in supply and additional debt that has been created will remain. A combination of increased money supply, ever increasing levels of debt and an inability to pay it off ultimately wanes the trust that countries have in fiat currencies.
3. Currency debasement - Specifically, the factors aforementioned are expected to contribute to an acceleration of currency debasement. A dollar today will be worth significantly less than a dollar tomorrow, and is part of a process that has happened to every single fiat currency in history. In a world of close to ~0% (or negative as in Germany) interest rates, investors, savers and institutions are looking for other ways in which to either grow or protect their bank accounts and balance sheets.
4. Store of value - Traditionally, these safe havens in times of economic uncertainty have been gold and silver commodities, however, Bitcoin is increasingly taking a slice of that pie due to its enhanced features as a store of value. These are features such as: portability (you can take it anywhere with you, it's a lot lighter than gold!), divisibility (you can have 1/100 millionth of a Bitcoin - this is called a Satoshi), fungibility (you can use it as a method of payment (think PayPal and McDonald's accepting Bitcoin) and durable (it sits on an incorruptible ledger with a finite supply).
5. Political tensions - To add to this, political tensions are increasing as evidenced by ongoing trade wars and increasing nationalism. Countries like China and Russia want to move away from the U.S dollar as the global reserve currency and promote their own and/or adopt a digital alternative. China in particular controls the majority of the computing power used for the mining of Bitcoin (approximately 65%) and is taking significant action to adopt reserves of this digital asset.
6. Big money and institutions – As governments bring increased regulation and trust to the world of cryptocurrency, large players including PayPal, Robinhood, Square, Blackrock and JP Morgan have taken notice of Bitcoin and begun investing heavily. Large family trusts and mutual funds are noticing the outperformance of Bitcoin and if they’re seeking above market returns, they cannot ignore the fact that the price of Bitcoin is the strongest performing asset (bar Ethereum) of the last decade.
7. The underlying technology is unquestionable and here to stay – Blockchain is of course what I’m referring to. It just so happens that Bitcoin is the first mover in this game changing technology and has a Facebook like network effect.
Although I’m bullish on Bitcoin because of the above macroeconomic factors, it is impossible to predict the future. Ultimately, investing is a calculated risk, but as I take a step back and look at these factors, I would consider myself to be bullish on the future of Bitcoin. Are you?