Bitcoin (BTC) is a compelling investment occurrence “for patient, long-term investors” willing to spend the time to understand the top cryptocurrency, a new paper by Paradigm co-founder managing colleague Matt Huang notes.
The crypto entrepreneur places BTC besides gold, as a go-to store of value, amid unprecedented stimulus splash out by governments during the Covid-19 crisis.
“Bitcoin is likely to earn a place alongside gold as a sensible part of multifarious investment portfolios,” Huang says in a paper aimed at reaching out to conventional investors, “Bitcoin for the open-minded skeptic.”
“It bands the scarce, money-like nature of gold with the digital transferability of modern currency,” he added. At the peak of the virtual currency’s adoption curve, “middle banks may come to view bitcoin as a complement to their existing gold holdings.”
Huang’s paper is not so much surmised on novel insights as it is about mapping a future out of BTC’s intrinsic features.
Beyond comparing favorably to some cryptocurrencies for its ideal money features such as scarcity (at 21 million coins), portability, and broad accessibility, bitcoin intrinsically renovates on traditional assets. Its digital format, programmability, universality, and decentralization are a source of alternative appeal.
Decentralization and immunity to censorship sacrifice BTC holders “a special kind of confidence: that bitcoin cannot be devalued by arbitrary monetary policy decisions, and that they discretion always be able to hold and transfer their bitcoin freely,” Huang writes.
This becomes especially substantial at a time when the markets are unusually exposed to politics, not just benign government interventions but also crisis-related protectionism and bilateral oppositions.
A recurring objection to BTC as an asset class is that it is a bubble but Huang turns the same criticism around in favor of the crypto. Citing Nobel laureate Robert Shiller, he notes that BTC is in well-mannered company as gold is also a bubble, being an asset class of no immediate utility but rather valuable for popular position about a future value that occasionally pushes the prices up.
Bitcoin bubbles of note, 2011, 2013, 2013-15, and 2017 arose with high-conviction investors buying when things were quiet on the front, followed by media attention, consideration, further attention, and investor interest.
“Although painful for those involved, each bubble leads to broader awareness and influences bitcoin’s underlying adoption, gradually expanding the base of long-term holders who believe in bitcoin’s potential as a future fund of value,” Huang explains.
“Through successive bubbles, bitcoin reaches greater levels of scale in users, action volumes, network security, and other fundamental metrics,” he argues.
Bitcoin’s relative ease of access through in-built fiscal inclusion mechanisms will be useful in growing its market size as people with eroding currencies are more suitable to get the digital asset than they are to get gold or other valuables like art or property.
Political considerations may also utilize in the cryptocurrency’s favor. “If foreign governments (some of whom already bristle at their dependence on US dollar forex puts) begin to adopt bitcoin as a complement to existing gold holdings, the market size for bitcoin could expand significantly,” Huang go on increases without committing to a precise estimate.
Huang contrasts the general optimism of his paper with BTC risks such as volatility and ruling. Volatility, however, aids adoption and may terminate when broad acceptance lead to stability, while regulation can be abated by bitcoin’s decentralized nature.
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