12 years ago on October 31st 2008 anonymous individual posted a whitepaper called “Bitcoin: A Peer-to-Peer Electronic Cash System”. This was the time of financial crisis with major indexes falling 10% in a single day, financial institutions needing bail-outs, and the beginning of the massive quantitative easing (QE) programs. This would ultimately lead to an accelerated monetary debasement across the world. The poster of the whitepaper identified himself as Satoshi Nakamoto, where he described a new peer-to-peer payment system where cryptographic proof is used instead of trusted third party like a bank, payment processor or a clearing house. This payment system was called Bitcoin. Shortly after the whitepaper more details of the project emerged – Satoshi decided that 21 million coins supply and every 4 year halving schedule was ideal for this new and innovative system.
Fast forward 12 years, we have gone through 3 halving events and corresponding market cycles. The latest Bitcoin market cycle comes at a similar economic challenging time. Around the world central banks again has cut interest rates to 0% and below, and it looks like we are going to stay in the zero-rate environment for the foreseeable future. Multiple stimulus packages in 2020 combined with greatly expanded central bank balance sheets indicate a strong push towards fiat money debasement to spur the inflation.
Bitcoin emerged as a new asset class offering scarcity properties similar to gold and enabling greater portability and divisibility of the asset. Different institutions recognized the appeal of Bitcoin started to move portions of their fiat holdings to Bitcoin. So far we have Fidelity Investments published a paper showing positive impact for 1%-5% Bitcoin allocation in clients’ portfolios. Stone Ridge ($10B asset manager) now owns $115M in Bitcoin. Paul Tudor Jones publicly revealed that he has put 2% of assets into Bitcoin. Grayscale, the largest digital asset investment manager, saw record inflows of $1B+ in 3Q20 and now has almost $6B in total AUM. Interestingly enough, publicly traded companies started to move their fiat-denominated treasuries into Bitcoin as well. MicroStrategy ($1.2B+ market cap on NASDAQ) put 85% of their $500M balance sheet ($425M) into Bitcoin. And most recently, financial technology company Square announced that it had purchased about $50M of Bitcoin for their balance sheet (approximately 1% of assets).
Governments around the world are also waking up to Bitcoin adoption. Iran officially recognized Bitcoin and legally became the purchaser of Bitcoin from the local miners. Other governments continue to meet and discuss Central Bank Digital Currencies (CBDCs) as means to join the peer-to-peer payment system. International Monetary Fund (IMF) met on October 19th to talk about CBDC with central banks of developed countries discussing plans to issue their currencies in a digital form.
All these developments point to only 1 thing – Bitcoin adoption is increasing while the issuance rate of Bitcoin is decreasing. If we remember a basic law of supply and demand, we can say with confidence that over the long run the price of Bitcoin will increase as compared to world’s fiat currencies.
12 years ago Bitcoin started a chain of events that will re-shape the financial systems around the world. Starting from the basic medium of exchange, combined with fixed supply monetary policy it created a new digital asset class which will level the financial playfield for everyone.
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As usual, none my articles or charts here constitute a financial advice. You and only you are responsible for your financial decisions.