Bitcoin continues to make inroads across financial markets
Bitcoin has been compared to gold due to several core characteristics that both assets share. Gold and bitcoin both have a finite supply (although the actual limit of gold remains undetermined), investors and analysts often describe both as counter-cyclical or as a hedge against inflation, and for most investors these assets only comprise a modest percentage of overall investments. The recent selloff sparked by fears of a U.S. recession thanks to softer-than-expected economic data and a surprise rate hike by the Japanese central bank extended through global markets and asset classes. Bitcoin and crypto were not spared from this selloff, with prices briefly dropping below $50,000 before recovering in the days following this heavy selling.
Such volatility and seemingly direct correlation between bitcoin, other crypto, and financial markets at large undermine the position that bitcoin serves as a digital version of gold. If bitcoin, as it has, tracks general market movements and reacts in a similar way to geo-political, economic, and interest rate data how is bitcoin distinct from other financial instruments? This argument, although persuasive on the surface, overlooks several points of differentiation between bitcoin and gold. In fact, the reality that bitcoin might not be the 21st or 22nd century version of gold bodes well for further adoption of bitcoin and other cryptoassets.
Let’s take a look at a few of them.
Mainstream Crypto Has Passed Its First Major Test
The recent dramatic sell-off that occurred was the first major correction and pullback for crypto since retail and institutional investors gained exposure to bitcoin via the spot ETFs launched in January 2024. Even with prices still recovering from the dramatic selloffs that occurred, several important facts are worth highlighting as positive developments. First, according to research by Bloomberg Intelligence, and in the midst of the first major price decline since inception, only approximately 0.3% of assets under management left these ETFs.
Additionally, crypto wallets holding between 1,000 and 10,0000 bitcoin consistently increased holdings during the selloff, indicating that longer-term and potentially institutional investors retained confidence in the value proposition of bitcoin. Lastly, it is worth pointing out that beginning on August 7th, Morgan Stanley began allowing its 15,000 financial advisors to pitch spot bitcoin ETFs to wealth management clients that met certain qualifying criteria. Contextually the wealth management business at Morgan Stanley had approximately $6.6 trillion in assets under management at the end of 2023.
Bitcoin And Crypto Represents Technological Innovation
Unlike gold, which has remained unchanged for millennia, bitcoin and cryptoassets more broadly represent significant technological innovation and advancement on several fronts. The possibilities for sovereign self-identity, portable and immutable data across multiple industry lines, instantaneous access to funds and payments, and real-time analytics all continue to move from concept to reality across the globe. These innovations, alongside the benefits that blockchain-based information can deliver to AI applications – providing a trusted and readily available pool of data from which to work – allow bitcoin to stand apart from other comparative commodities such as gold.
The fact that virtually every large TradFi institution in the world has invested into developing blockchain and crypto related products and services illustrates this point clearly. Additionally, with legislation being floated that the Federal Reserve should convert gold holdings to bitcoin, the benefits of divesting from gold into bitcoin continue to become more widely discussed.
Crypto Is Well Represented In The 2024 Presidential Race
From being an issue discussed primarily in online forums and message boards, crypto has emerged as something being discussed at every level of the 2024 U.S. Presidential campaign. From crypto superPACs raising over $100 million to fund races and push crypto-specific issues forward, swing voters consistently listing crypto as an important policy issue, or candidates that publicly disclosed pro-crypto views and crypto holdings (republication VP candidate J.D. Vance), crypto has moved front and center in short order.
This highlights not only the rise in prices that have occurred in 2024, but the speed with which bitcoin and other tokenized financial products (payments and otherwise) have permeated the wider investor marketplace. With discussions around the role of crypto as a strategic asset continuing to progress, institutions continuing to invest in and buy crypto, and bitcoin surviving its first major decline in the retail era, crypto looks like a political issue here to stay.
Bitcoin isn’t gold, it’s better.