The Surprising Reason Bitcoin’s Not in a Bubble...
What’s the difference between The Flintstones’ currency and bitcoin? According to NYU Stern School of Business professor Nouriel Roubini, the Stone Age cartoon’s use of shells as currency was “a more sophisticated monetary system, based on a benchmark.” Roubini is one of many bitcoin naysayers who believe the digital currency is in a bubble. He’s joined by plenty of others like:
• Billionaire investor Rakesh Jhunjhunwala, who calls it a “speculation of the highest order” and wants it banned.
• Radio personality and stockbroker Peter Schiff, who calls it “the biggest bubble of all time.”
• And economist David Rosenberg, who says bitcoin is in a “massive bubble.”
I can see why they might think that – we’ve seen the bitcoin bubble “burst” in the past from temporary dips. Like in 2018, when it reached an all-time high, then went on to fall over 80% to a little above $3,155. So it would be easy to conclude that bitcoin’s recent rally is no different. But here at Casey Research, we don’t just go along with what the talking heads in the media are saying. We do our own research and analysis before making any investing decision. And I see something different playing out this time…Not only are these so-called experts wrong… there’s now one unlikely driver behind bitcoin’s rally they haven’t considered. And as you’ll read below, it’ll only continue to send bitcoin’s price higher…
Bitcoin’s Unlikely Driver
Bitcoin has had a roaring 2021. So far this year, the cryptocurrency is up over 70%. For comparison, the S&P 500 is up just 4%. This week, bitcoin hit an all-time high of $58,350, and its market capitalization topped $1 trillion. It’s since adjusted to just over $50,000 as I write. But these volatile dips are par for the course. We don’t know if bitcoin will repeat its 2020 rise, when it ended the year up 305%. But thanks to recent developments, there’s something that will ensure bitcoin’s long-term picture remains intact…
Ironically, it’s the government that will support bitcoin.
Governments hate bitcoin. It is the exact opposite of the fiat currencies they can control. It’s unregulated, decentralized, and you cannot “print” more bitcoin… It embodies everything that any sovereign government dislikes and wants to regulate. But despite all this, there are actions the government can’t help but take… that will only boost bitcoin…
The Pandemic Money Pour
Regular readers know that our founder Doug Casey often says you can always count on the government to do the wrong thing. And its wrongheaded moves often lead to buying opportunities… if you know where to look. That’s what we’re seeing play out with bitcoin… thanks to the government’s reaction to the COVID crisis.
To fight the COVID pandemic, global governments allocated over $10 trillion to relief efforts in just two months in 2020, according to consulting firm McKinsey. This one stock could be a game changer for you. Global debt soared by almost $20 trillion and drove governments to a debt load not seen since post-World War II levels. Early into the pandemic, the Fed pledged to support both the economy and the capital markets. This included pouring hundreds of billions of dollars into the bond markets, a $25 billion airline bailout, and over $300 billion in business loans.
The point that corporations, and the stock market, get when they see actions like that is a broad “we’ve got your back.” And the market marches on…The problem is, when there’s too much demand for traditional assets like stocks or even bonds, the market gets “overcrowded.” So investors go into smaller, more obscure niches of the market. The market also gets bolder. Knowing the Fed will step in if things go wrong, it takes risks it would otherwise avoid. That’s where bitcoin comes in…
Bitcoin Is Going Mainstream… And That’s a Good Thing
Up until 2020, bitcoin was a truly alternative asset. Not only was its market cap relatively small at $133 billion, but it was mostly discussed outside of the mainstream press. Now, it’s all over the mainstream media. I bet if you opened any investing-related website right now, you’d see a deluge of crypto news. And its market cap has grown by almost eight times to over $1 trillion. It’s approaching the total value of the silver market, which sits around $1.5 trillion. But silver has been around for thousands of years.
And as Crisis Investing chief analyst Nick Giambruno pointed out to readers in his most recent issue, “to reach a trillion-dollar market cap, it took Google, Amazon, Apple, and Microsoft, 21, 24, 42, and 44 years respectively.” Bitcoin’s only been around for about a decade. And it still has plenty of room to grow. Now, though, bitcoin is transforming from a truly niche asset to one comparable to silver, at least in size.
And this means it’s attracting a larger market of buyers. As I said above, the Fed’s moves to prop up the market have allowed businesses to make bolder moves with their portfolio. We are seeing enormous inflows into bitcoin-related assets, like the Grayscale Bitcoin Trust, which was the first bitcoin investment vehicle available through regular brokerages. In fact, according to the Trust, institutions like hedge funds, endowments, and pension funds were responsible for a 10x growth in its assets in 2020, from $2 billion to over $20 billion. These institutions were emboldened by the government’s promise to support the markets and ventured where they previously wouldn’t have… into the niche world of cryptocurrency.
In other words, before 2020, it was not professional to suggest buying bitcoin for an institution. Now, you look like you’re out of touch with reality if you don’t. Paul Tudor Jones, a billionaire investor, even called bitcoin “the best inflation hedge.” With a blessing from high-profile investors like Jones, bitcoin will be discussed in even more boardrooms. And more money will flow into the funds that provide access to it… as well as into bitcoin directly.
What to Do
Bitcoin is officially going mainstream. And that’s a good thing. Institutions look for assets with a lot of liquidity before establishing their positions. So the more bitcoin’s market capitalization grows, the more comfortable hedge funds and other asset managers will feel…And as more money flows into these funds… that’s good for bitcoin’s price. Because, as I said above, the supply of bitcoin is limited. So the more demand there is, the higher its share price will go. As a result, I think that this bitcoin bull market will only get stronger.
But this is yet another bullish sign, as these mainstream moves will familiarize more investors with bitcoin and send even more money into the space. As always, just remember to never bet the farm on any trade.
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Courtesy Of Andrey Dashkov - Casey Research USA...