15
Nov
19

Why Bitcoin Deserves Everyone’s Attention

Bitcoin inhabits an interesting place in the financial world. The cryptocurrency was started in 2009 but didn’t truly gain widespread notice until 2017 when its price surged from less than $1,000 to $20000 before crashing in the early part of 2018. This event led many to call BTC an overly volatile bubble. However, Bitcoin may be more promising than many realize, and it deserves attention.

 

Potential as a Haven Asset

 

In the early days of humans using money, currency was in the form of coins made from precious metals. In theory, the coins were worth their face value because they were made from the equivalent amount of gold or silver. Today, most money is a fiat currency and not backed by precious metals like gold. That means that it does not have an intrinsic value. It is based on a belief and it relies on debt. Fiat currency is not a scarce resource.

 

As a safeguard against the monetary policy of central banks,  many people invest in haven assets. Conventionally, this has been gold. However, Bitcoin may be a viable alternative, since it is digital and easier to transfer from A to B.

 

Although cryptocurrencies don’t have the same history as gold, neither are they administered by any country’s central bank. Instead, they use the blockchain to manage transactions and supply. Furthermore, only a small amount of BTC can be mined each year and the total supply limit of Bitcoin is set close to 21 Million. This makes it a strong option for a safe-haven asset.

 

Possible Scenarios due to Quantitative Easing

 

Bitcoin may benefit from governments performing quantitative easing. This is the practice of a central bank purchasing securities to increase the current money supply. It is often used to support lending and investing, especially when those markets are slowing.

 

In September 2019, the Federal Reserve made some capital injections using this mechanism to help the overnight lending market. This market is used by banks to ensure they have enough cash on hand. Quantitative easing can cause some concerns about the future health of the economy, especially if it needs to be used repeatedly. As a result, many people purchase haven assets.

 

The more a government uses quantitative easing, the more likely people are to buy Bitcoin as a potential haven asset. Even if gold continues to be the go-to haven, many buyers want to be able to diversify. Cryptocurrency offers a chance to buy an asset that is relatively safe against drops in the value of fiat currency.

 

Learn More

 

Bitcoin may be a promising asset for people looking to invest outside of the direct influence of central banks. It deserves people’s attention as it will continue to grow as an important part of financial markets. To learn more about cryptocurrency and the blockchain: We have everything you need to do your research on cryptocurrencies.

Raphael Birchner
CHAIA Master Brain