Bitcoin (CRYPTO: BTC) just hit another new record high. And as we humans like to put more weight on nice base-10 numbers (thanks fingers), this is a big one.
The world's largest cryptocurrency topped US$50,000 in the last 24 hours, peaking at US$50,580. It's since retraced a bit, to the current price of US$49,500. That's up some 70% in 2021 alone.
Isn't Bitcoin just a fad?
For many investors, cryptocurrencies like Bitcoin appear to be little more than a fad. One that will eventually fade away, leaving holders of the digital tokens empty-handed.
But the recent adoption by larger institutions – including the US$1.5 billion investment by Elon Musk's Tesla Inc (NASDAQ: TSLA) – is shaking the naysayers' resolve.
According to Eleanor Creagh, Australian market strategist at Saxo Capital Markets, fading trust in institutions is driving the renewed appetite for Bitcoin:
Bitcoin was birthed in the aftermath of the GFC as a currency free from the corruption of central banks and governments, so it's unsurprising to see renewed interest during a period when central banks' unconventional monetary policies are highlighting many of the issues Bitcoin sought to solve.
Creagh says mainstream investors are increasingly accepting the current economic and financial models are flawed.
Much as in the wake of the 2008 financial crisis, we are seeing intervention and unconventional monetary policy acting as dual forces that serve to entrench and aggravate inequality. Once again, inequities within our systems are in full view, with a "K-shaped" recovery increasing the wealth transfer to those already asset rich.
Bitcoin meanwhile is designed to function on a standalone basis. It is uncorrupted by banks and governments and therefore immune to the debasement suffered by fiat currencies.
Born from easy money policies
Creagh points the finger at central bank and government's turning their backs on orthodoxy themselves, with "unbridled liquidity injections and ever-expanding central bank balance sheets" diminishing mainstream scepticism of cryptocurrencies.
Bitcoin's capped supply at 21 million and non-inflationary model adds to its appeal as a debasement hedge and store of value within this regime, where governments and central banks have stimulus spigots on full force. In addition, the asset possesses a unique quality of an embedded call option on the future should it become a dominant digital monetary network.
She says that high-profile investors and large asset managers like Blackrock, Morgan Stanley and Guggenheim have helped drive the Bitcoin price higher and increased the general public's acceptance of the digital token.
Creagh concludes that "In the long term, institutional and commercial support will further validate the cryptocurrency, increasing its popularity as a store of value and paving the path toward mass adoption."
