As Bitcoin continues to rise, many proponents now refer to it as the digital gold. However, some ask whether bitcoin is ‘fool’s gold’ or the new gold. The crypto hit new record highs of $42,000 earlier this month, only to lose over 20% over the weekend.
Yet at around $38,000 at the moment, bitcoin has still exploded since October, when it cost $11,000.
An Unreliable Payment Option
In the past, the preserve of “basement-dwelling libertarians” who hoped to change and upgrade the financial system, currently bitcoin is close to becoming a mainstream investment, according to The Economist.
It turned out to be an unreliable payment option since the network can only handle a few transactions every second. However, all hope is not lost. Bitcoin can emulate gold as a store of value that operates beyond the reach of any government’s mismanagement.
The younger investors seem to prefer using digital wallets to the hassle of managing physical gold bullion. Yet, fraud and theft are quite rampant in the world of bitcoin trading. Moreover, the crypto’s price seems to move simultaneously and in line with the stock markets which undermines its credibility as a haven asset.
Bitcoin’s reputation for ‘extreme price swings’ is limiting its institutional adoption. However, all that seems to be changing with MicroStrategy and Grayscale leading institutional investors into the bitcoin market.
A store of value is not reliable if it loses over 20% of its value over two days. But, all those that believe bitcoin can shake off these challenges think that big returns are coming up in the future.
JPMorgan predicts that bitcoin would have to quadruple before the total market value rivals the $2.7 trillion that private investors have already put into gold. That may imply a bitcoin price of above $146,000.
Regulators Are Cautious
John Oliver, a comedian, once joked that:
“Bitcoin is everything you don’t understand about money combined with everything you don’t understand about computers.”
In that context, the regulators remain cautious, and earlier this week the Financial Conduct Authority (FCA) warned investors in the UK that crypto-assets involve very high risks. Hence, any users who invest in the asset should be prepared to lose all their money unexpectedly.
But eventually, governments will be more comfortable with cryptos replacing gold than cryptos acting as the replacement for sovereign fiat money. The latest frenzy seems dubious to some analysts, but these are strange times.
Gian Volpicelli from wired.co.uk said that bitcoin is slowly “being domesticated.” The latest bitcoin bull run has seemed positively ‘staid’ compared to the unsupported mania of the 2017 boom and crash.
Back then, investors burnt their savings on ‘unrealistic promises of endless revenues’. The crypto-based hedge funds were seen to double their assets under management to $2 billion between 2019 and 2021, according to reports from Elwood and PwC.
Nonetheless, the crypto surge maybe is a sign that everyone in the crypto space has become quite wild. The despair and chaos of 2021 have shaken the belief of the conventional monetary and political systems, as explained by Lex Sokolin from Consensys. In the end, the institutional investors are seeking an “apocalypse hedge”.
What happens next? Will the institutional investors continue streaming in to make bitcoin reach the digital gold status quickly or will they shun it. Time will tell how all this rolls out with the bulls convinced that the market is maturing with the entry of institutions whole the critics and bears believe that it is just a bubble waiting to burst sooner or later.