By Katharine Wooller, Managing Director – UK and Eire, Dacxi
People are rightly excited about Crypto today. It has recently broken the 3 year downwards trend, and most Bitcoin (BTC) holders are in profit – recently Glassnote, the data analytics firm, found that 77% of BTC supply are in a state of profit.
Certainly, year to date figures suggest that the major cryptos are immune to the COVID blues. At the time of writing, Ethereum is up 207%, Bitcoin is up 56%, and Litecoin is up 42%. Compared with the FTSE plunging over 20% in the same period, you can see why institutional and retail investors are tempted to rambunctious crypto, if only for reasons of modest diversification.
For many crypto enthusiasts, who are evangelical in their enthusiasm, crypto is a lifestyle choice, and nothing can dampen their ardour. There are endless people predicting the price of Bitcoin – most of them have been repeatedly wrong on an asset that often defies economic theory. Certainly, I would expect to see significant further volatility in coming months; caution is thus warranted.
However, to predict long term future trends, it is crucial to look at the “use case” in terms of problems solved and or opportunity created. For crypto, the currency opportunity is critical. Currency has two purposes: as a medium of exchange, to facilitate buying and selling, and to store value, and thus is how we hold our wealth.
Whilst crypto is failing the former “can I buy a coffee with it” test, it can triumph on the latter. Let us consider the potential maximum addressable market.
The excepted medium of Exchange is currently FIAT government issued currency. The ‘broad money’ ie cash or very liquid cash-like form in the world is $US80trillion. The total currency store of value is in Gold, Silver and Diamonds is approximately $7trillion, of which 99% is held in gold.
Currently bitcoin is proposed as an improved version of gold, by virtue of being cheap to store and easier to move, and thus is likely to seriously encroach on this market. If only $2tr were to move to bitcoin, the current price at time of writing, of $11,600 would increase ten-fold.
Cryptocurrencies are now a proven and accepted technology to create digital money, which will allow governments to eliminate cash and manage transactions for maximum taxation revenue.
In January 2020 the Bank for International Settlement reported that 80% of the Central Banks they surveyed were engaged in work around central bank digital currencies (CBDC). If 80% of the world’s currency, by value, coverts to crypto, there is an immediate need for $60trillion. Whilst I am not suggesting every central bank will be filling their coffers to the brim with bitcoin, it does indicate that the wave of adoption for blockchain technology is unlikely to reverse.
As the world collectively has the collywobbles as the money machine printers continue to ‘whirr’ spewing out billions of newly printed notes, it is likely the reputable independent cryptos will still be popular.
Indeed, already a number of respected hedge funds are using bitcoin to guard against inflation. If 2–3% of all currency is held in these options, there is a further additional $2trn market.
Post global pandemic, the world’s economic infrastructure is going to have the sniffles for a good time to come. Whilst crypto may not be the cure, it certainly has a role to play in our post COVID reality, and in my opinion, is here to stay.
