Bitcoin has long been a popular market for those looking to gain some kind of exposure to the financial markets. Many beginners have taken the approach of ‘just buying a bit of bitcoin,’ and they have made considerable returns.
With Bitcoin printing all-time highs, the first question is, will this continue? The second question is, why? Looking behind the scenes, it is clear that a seismic shift could be on the cards.
Long-term price strength can’t be guaranteed but comments from the financial establishment shed some light on the reasons for the crypto’s recent strength.
Will the Financial Establishment accept Bitcoin?
There are two ways that Bitcoin’s acceptance will be measured:
- As a store of wealth
- As a payment processing tool
This differentiation is important as the payments side of Bitcoin’s worth has been the focus of analysis for a long time. It still faces many challenges.
Bitcoin as a means of transaction
In January 2021, buybitcoinworldwide.com reported that payments still take a minimum of 10 minutes and a maximum of one day to process.
Elon Musk’s celebratory message of last week that Tesla would accept Bitcoin as a payment tool for its products was noteworthy. Buying a car, however, is a drawn-out process and a day’s wait is not unusual.
Musk’s words may have been interpreted as suggesting we’ll all be using Bitcoin anytime soon. The technical protocols currently just don’t support that scenario.
Bitcoin as a store of wealth
Bitcoin bulls are on much firmer ground when they argue that Bitcoin could be a store of wealth. Blockchain technology ensures transparency of holdings, and each day, week, or month that Bitcoin rises in price, the resistance to its acceptance becomes weaker.
There is no guarantee that the coin will hold its value, but mainstream financial houses’ reaction to the situation is interesting.
Wall Street, then
One year ago, Warren Buffet was speaking for many in the establishment when he said:
“Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.” (February 2020)
Wall Street, now
Fast forward 12 months and JPMorgan bosses dominate the headlines by sharing that pressure is building on the bank to embrace bitcoin. A lot of the pressure is coming from the bank’s staff. Troy Rohrbaugh, global markets head, explained that during a recent internal ‘town hall’ meeting, it was the bank’s employees who suggested greater involvement in the crypto markets was required.
Follow the money
Bitcoin is limited in supply to a far greater extent than fiat cash, which is being pumped into the markets by central banks. The coin, therefore, offers a hedge against inflation, which is considerable progress for a project which started as a technical experiment designed to revolutionise the financial markets
Ironically, Bitcoin is increasingly used as a store of wealth by the financial establishment it was designed to challenge.
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