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Since its creation in 2009, Bitcoin has taken the investing world by surprise. We have experienced both the euphoria of a bull market and the despair of a bear market. While it’s true that Bitcoin has had a wild ride to get to where it is today, it’s finally getting the attention and recognition it deserves.
Bitcoin is gaining more and more mainstream acceptance every year. Bitcoin’s market capitalization has hit an all-time high of $7 trillion as the leading cryptocurrency breached the $60,000 mark.
At times, Bitcoin has been criticized for being too volatile, which often results in losses for inexperienced investors as they buy at cycle tops and then capitulate when they cannot withstand a market correction. Volatility is also one of the main reasons why the SEC has not yet approved a Bitcoin ETF. However, it is important to remember that we are still in the early days of this new asset class. A good way to analyze Bitcoin's growth trajectory is to try to figure out where it is in the technology adoption life cycle.
The Technology Adoption Lifecycle is a sociological model that describes the adoption or acceptance of a new product or innovation. Visually, you can imagine this cycle as a normal distribution, starting with the innovators, then the early adopters, then the early majority, and finally reaching the final two groups of late majority and laggards. The tipping point in the life cycle occurs when the early adopters cross the chasm and gradually become the early majority. It can be difficult to figure out exactly what percentage of people own bitcoin, but according to one survey it appears to be in the range of 10-15%, which would make them early adopters of the digital currency.
Bitcoin has been recognized as a new financial asset in a rapidly changing market. With more and more public companies acquiring Bitcoin and speculation over who will join Square and Tesla next, we take a step back to understand how cryptocurrencies are becoming a custody solution for businesses - a trend likely to grow ?
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The tweet that changed everything
While regulators in some countries have tightened their grip on bitcoin, a growing number of companies have begun accepting that at least bitcoin, the largest cryptocurrency by market capitalization, is safe enough. There’s good reason to believe this, as the percentage of crimes related to cryptocurrencies dropped significantly last year, according to blockchain analytics firm Chainalysis’ 2021 Crypto Crime Report.
Until recently, companies have been wary of bitcoin because it works differently than traditional financial markets. Many people are still unable to accept the decentralized nature of Bitcoin, but many are beginning to accept it as a viable solution.
It cannot be denied that Bitcoin has come a long way since its inception. Despite the impressive growth, a hot topic of discussion is whether institutional capital will eventually flow into the space. People aren't asking that question anymore because Michael Saylor and Elon Musk have already unleashed a buying spree that may just be the beginning of what's to come.
"Bitcoin is a swarm of cyber bumblebees, goddesses of wisdom, feeding on the fire of truth, exponentially smarter, faster and stronger behind walls of crypto-energy," Thaler said in his tweet.
It's clear that Saylor is a fan of this asset due to its scarcity and ability to hedge against dollar depreciation. He's also talking with his money. At the end of last year, MicroStrategy announced that it had purchased 29,646 bitcoins for approximately $650 million, with an average price of approximately $21,925 in 2020. However, the company didn't stop there. Just recently, MicroStrategy raised another $1.05 billion to buy more bitcoin.
Thaler’s confidence in Bitcoin has outgrown MicroStrategy’s funding. He's also trying to hire other Fortune 500 executives and technology pioneers to serve as bitcoin ambassadors. In fact, a Twitter exchange between Saylor and Elon Musk could completely change the direction of Bitcoin.
On Dec. 20, 2020, Thaler tweeted to Musk, "If you want $100 billion in shareholder value, convert TSLA's balance sheet from USD to BTC." S&P 500 Other companies will follow your example and gradually become supporters of $1 trillion."
While Saylor has been setting trends and might even be considered the face of the movement, there's no denying that Elon Musk is a transformative figure in the tech world. His words carried weight, so when he spoke, people listened. In Thaler's original tweet to Musk, Thaler correctly predicted that if Musk decided to buy bitcoin, the company would follow in his footsteps. Musk did, however, and the companies followed suit.
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The Elon Effect Is Fermenting
According to new research from JPMorgan, 58% of investors say Bitcoin is here to stay, and 22% say their companies are likely to trade or invest in cryptocurrencies. This is no surprise. Large corporations are buying this asset (and indeed it is a very volatile asset), for example Tesla stock is about as volatile as Bitcoin. Overall, the volatility of the stock market is almost the same as that of the cryptocurrency market.
At this point, buying Bitcoin is no different than buying Microsoft stock. Of course, Bitcoin is not yet as popular as Microsoft stock, but as it becomes a store of value, it becomes increasingly attractive to large corporations and institutions around the world.
Since Tesla announced it bought $1.5 billion worth of bitcoin, there appears to have been a flurry of news from institutions that either have already bought bitcoin or are strongly considering participating. In fact, even CNBC’s Jim Cramer said it would be irresponsible for companies not to have Bitcoin on their balance sheets. Well, companies are sure to take this advice to heart and choose to do the responsible thing, at least consider adding Bitcoin. Below are some examples of companies joining the Bitcoin scene.
On February 10, 2021, Twitter's chief financial officer stated that the company was considering adding Bitcoin.
On February 13, 2021, Morgan Stanley said it may invest in Bitcoin through its $150 billion investment arm, Counterpoint Global.
On February 17, 2021, BlackRock (BlackRock) chief investment officer Rick Rieder (Rick Rieder) announced on CNBC's Squawk Box that BlackRock began to "dabble" in Bitcoin.
Also, on February 17, 2021, The Motley Fool announced that it would purchase $5 million worth of Bitcoin.
Bitcoin has already been used as a hedge against possible declines in the stock market. If the stock market crashes (a scenario that cannot be ruled out because there are too many dollars in circulation.), then an asset like gold or bitcoin can provide some safety. And there are clear signs that Bitcoin’s adoption is growing as companies like Apple Pay, PayPal, and Mastercard bring bitcoin to their networks. Likewise, Bitcoin exchange-traded funds (ETFs) have launched in Canada, and regulators are considering launching them in the United States as well.
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The Race for the Bitcoin Pie
It should be obvious by now that businesses are starting to recognize Bitcoin's potential as a digital currency and store of value. One of the factors driving Bitcoin's recent appreciation is the concept of scarcity. Bitcoin has a maximum supply of 21 million, and this cap may be smaller as a portion of the supply is lost or consumed over time.
Analysts at Glassnode said at the end of 2020 that Bitcoin was becoming harder to buy as liquidity on several exchanges declined. Liquidity will surely continue to dry up as more institutions turn to Bitcoin as a store of value as a hedge against devaluing fiat currencies. The lack of liquidity also leads to a fragmented market, which means that if cryptocurrency traders only keep one exchange account, they may not be able to execute trades at the best price. Therefore, it is generally a good idea for traders to consider opening accounts on all major exchanges, such as Coinbase, Kraken, Binance, Bitstamp and Bitfinex, and then use a platform such as Cove Markets or Voyager to be able to trade in one easy-to-use interface to manage them.
Consider the number of people participating in the Bitcoin economy. Bitcoin mining consumes only as much electricity as a medium-sized European country. The same goes for the number of wallets, which range from 60 to 100 million, according to the latest estimates from Coinbase and Blockchain.com. Bitcoin, which reached a market capitalization of $1 trillion for the first time this year, has now reached the ranks of a giant decentralized corporation, rivaling the likes of American tech giants Apple, Microsoft or Tesla.
The concept of scarcity is often brought up, but until recently, due to the increased printing of fiat currencies around the world, people really took it to heart. At some point, there may be a race to accumulate this asset, and Elon Musk will play a big part in it. Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, recently said that bitcoin is "a fantastic invention".
