Bitcoin is not a bubble, but rather the biggest disruption in savings technology and value conservation since WW2
Payments giant PayPal, came out in October with a dramatic announcement that it would recognize digital currencies as a means of payment directly from PayPal accounts.
This announcement joins a number of similar announcements by public companies in the NASDAQ, and it is one of the milestones towards one of the biggest revolutions in the financial world, since the invention of banknotes: digital currencies as a means of payment, savings and value preservation.
This revolution led by Bitcoin, the first digital currency invented in 2008 by Satoshi Nakumoto, who succeeded in producing the Ferrari of digital currencies, an object of imitation, admiration and construction of an entire industry.
So, what actually reinforces the claim that the digital currency revolution is indeed a revolution that will not disappear following a hack, attack or legal restriction, that will lead to a collapse in their value? PayPal’s announcement is one of the significant factors that has led to a significant rise in the value of digital currencies over the past few weeks, and not in vain.
If at the time of the fall in the value of digital currencies in 2018, the main argument was that currencies like Bitcoin are primarily a tool for illegitimate payments, speculation and evasion by authorities, PayPal’s recognition of these currencies as a convertible virtual currency is a major breakthrough.
Moreover, when such a large payment platform recognizes these currencies, many others consider it a necessary move, otherwise, they may be left behind. This declaration is a significant event in terms of PayPal, as indication for this the company’s CEO, Dan Shulman, has publicly announced it on every stage and across all media.
The announcement of a payments giant like PayPal is not the only evidence of the transformation of digital currencies into international universal currencies, which soon may be great concern to central banks.
GBTC, a ETF traded on the US stock exchange, already holds over 500,000 BTC worth $13 billion, growing rapidly and accessing the asset directly into investment portfolios in banks while regularly trading at a premium of 20% over the actual value of Bitcoin in the fund. This fund continues to grow and to purchase Bitcoin on the open market at a dizzying rate, while according to the production formula, only 900 new BTC added to the global quantity every day.
In addition, Fidelity, one of the largest investment banks, has set up an investment fund in Bitcoin in 2020. This recognition also indicates the growing trust of institutionals from the traditional industry in the digital currency as a legitimate asset.
It may be argued that just as Bitcoin crashed in 2018, it may fall again, so it cannot be trusted as a stable currency. There is no doubt that the level of Bitcoin volatility against the USD is still very high, and some believe its value may plummet to zero.
Yet the national Fiat currencies are those who are increasingly threatened at this moment, as Covid 19 causes governments to continue to increase deficits and expenditures and accumulate huge debts financed by unlimited money printing by central banks, all of which produce overflow of money and depreciation against any fixed supply asset, which is not controlled by any central bank, and its rate of “production” is limited and known in advance.
What are the reasons for the success of Bitcoin, and how does its mechanics make it the most desired of all digital currencies?
The very fact that Bitcoin is the first digital currency is not necessarily the reason why it is successful, desirable and has the highest pricing.
The Bitcoin’s price has many reasons, including the fact that by virtue of its mining protocol, its quantity is final and amounts to 21 million coins, of which about 18 million are already in circulation, so that its quantity will increase by another 3 million units produced in the next 100 years at a declining rate.
Another reason for the increase in its price and the justification for the increase in the price of Bitcoin, stems from the common similarities between the Bitcoin and gold. Both are non-interest-bearing assets and are positively affected by the rise in the money supply and inflation.
Unlike gold, a rare metal whose amount in nature is limited (but not finite) the amount of Bitcoin worldwide is defined by a finite formula and known in advance. Bitcoin is gradually becoming an alternative means of saving and preserving value, while the limited supply versus the growing demand will cause its price to continue to rise into 2021–2022.
What does this revolution stand for?
When you look at Wright’s law, for example, you can see the end of the “hype” and the fall of digital currencies at the end of 2017 as part of the natural life cycle of any technology. Markets and investors always tried to explain the fall in all sorts of narratives. This does not mean that such fluctuations will not occur in the future, but in every landmark of the industry, the volume of adoption which grows by 30% to 40% per year to tens of millions of Bitcoin holders today. Evolution shows that the more widely used a currency, the less volatile it is.
The pace of revolution and the widespread adoption of digital currencies among the public will not be immediate, but the first and most significant phase of adoption is already in high gear — and it is on the part of the sophisticated investors who foresaw its fall and resurgence. This will increase investor confidence, followed by payment platforms and in the final phase, it will be the general public, and at this point the value of Bitcoin may reach $100,000 and even more.
Liron Rose is a 3x entrepreneur and early stage investor with several unicorn exits in Tel Aviv’s thriving tech scene.