What the big-ticket financial companies buying into Bitcoin could mean in 2021
Bitcoin is having much of a renaissance.
While the cryptocurrencies like bitcoin were never properly considered dead, over the past few months we’ve seen their prices steadily increase, and as of the time of this writing, the value of Bitcoin has broken into a new high of $24,000.
For regular people, it’s easy to read this as a comeback: The strong, unstoppable bitcoin many economists predicted three years ago before the value suddenly crashed is finally coming true. Bitcoin is, then, poised to become the de-facto currency of the future, and everyone should rush to purchase all the tokens they can.
There is certain logic to this reading, and in all honesty if you saw the price data without getting any extra information you wouldn’t be wrong to expect so.
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But we do have extra information. Not long after Bitcoin’s value spiked, data was released pointing out a single company, in this case, PayPal had made purchases equaling all of the tokens that had been created over a month.
Financial data from other companies shows that financial giants like Square, Stone Ridge Holdings, and MicroStrategy have also invested millions of dollars in Bitcoin recently. But what does this mean? Does this mean they’re preparing for a cryptocurrency-fueled economy?
Hedging their bets – or why simpler answers are better
No, it doesn’t. While certainly having a large amount of Bitcoin would give these companies a boost if cryptocurrencies were to suddenly move our global economy, there’s no expectation that such a thing will happen in the short-to-mid term. Crypto adoption has grown steadily, and there’s a decent chance we’ll see cryptocurrency transactions as a regular thing… by 2030 or so. Not by 2022.
What these companies are doing instead is an old, common practice for financial giants: They’re buying gold. Only, it’s digital gold.
And they’re doing this because… well, because they don’t trust the economy.
The recession hasn’t hit in full force… yet
Economists have been predicting a major economic recession for years, partly thanks to historical data that shows the economy works in cycles, and the longer a period of growth and stability lasts the more imminent a recession becomes. Warnings had been written since 2015, arguing that the correct thing to do would be to get ready for a recession.
And then the recession hit, during March 2020. Stock markets went down. The Dow Jones wiped all of its earnings from the previous year in a single day. Chaos ensued, at least among certain circles.
But soon after, the markets recovered. Taking a look at them today, and it’s almost like nothing happened. Many stocks are at all-time highs. Indicators went back up. Was it the shortest recession in history? No, it wasn’t.
A variable called Coronavirus
The Coronavirus pandemic played a part in the express recession we saw back in March. As it turns out, it’s also part of the reason the apparent recovery was so quick.
The truth is, we’re still in a recession – it’s just not noticeable because economic indicators have shifted due to the pandemic. The economy is currently working at half of its capacity, but we don’t notice it because most of us have been locked up, or nearly locked up, for too many months.
With a vaccine approved, however, the pandemic won’t last much longer – although it won’t be gone in just a couple months either. And once that happens, tens of millions of people will have to face the harsh realities of workplaces closing, unemployment soaring, and the largest number of evictions we’ve seen since the housing bubble burst.
All those things are actually happening as we speak, but we don’t see them, or feel them, because of lockdowns and protections that have been put in place… but will be lifted soon.
Bitcoin is the new gold
Companies have been buying Bitcoin largely because they know this. As it stands, the world is on the brink of a huge recession, and we’ll see it unfold sooner rather than later. While that doesn’t mean the economy will inevitably shatter.
From the above, governments still can do a lot to minimize the impact – having an impending recession doesn’t precisely fill people with hope and trust in fiat currencies.
So they turn to values as a way to hedge their bets. They buy precious metals. They stockpile goods. And, in 2020, they also buy Bitcoin – a largely speculative virtual currency that many have predicted will withstand a recession.
That’s why companies are investing. It’s not because the Bitcoin future is coming, but because they believe Bitcoin will hold its value better than the USD in case of a recession. And they may be right, or they may be wrong – but the risk is worth taking nonetheless.
Should I run and invest, then?
Hold on, you should first slow down a bit.
Investing right now might be a good move. Or it might be a bad one. Investing six months ago would’ve been a brilliant move, but then again hindsight is 20/20.
How the Bitcoin market develops from here on isn’t clear, because it depends largely on how those huge companies act in the future. As long as they keep holding, and investing into, Bitcoin tokens, the price should remain stable and even go higher.
But as soon as one of these companies decide to cash out? A huge influx of offer vs stagnant demand will spell a price crash. On top of that, this price crash happening is a matter of when rather than if – because it will happen.
However, we don’t know when. It could take two years. Or it might happen next week.
Shall you invest in Bitcoin right now, then, you should see it as playing the lottery. Variables entirely outside of your control will dictate whether you win or lose, and every day you’ll face the question of whether you want to jump off the ship now, or risk another day.
You may win big. But you may also lose big, if you are nit timing the market.