This is an editorial by Adam Taha, an entrepreneur with two decades of experience in government and corporate finance.
The latest Consumer Price Index (CPI) came in at a shocking 9.1% (9.8% in cities), many speculators predicted that the price of Bitcoin would rise to the “moon”. What happened was just the opposite and the bitcoin price movement correlates with other risk assets. Many threw an expected tantrum and asked why? “I thought bitcoin was a way to hedge against inflation…when is the moon?”
Keep in mind that Bitcoin is a 13-year-old elastic asset with only 13 years of network impact. How to be flexible? While the dollar, as we all know, has continued its rapid rise, posting new yearly highs against the British pound, euro and Japanese yen year-to-date, making it a wrecking ball against most foreign currencies and risky assets. However, in the past week, something incredible began to happen: the price of Bitcoin (in US dollars) has been maintaining a very strong level of support as the dollar is rising. This indicates a very important event in my opinion.
Bitcoin price action frustrates some retail investors. This is because the market is not dominated by retail. It is controlled by institutional investors and “big money”. Institutions dominate the market but themselves are bogged down by rules, regulations and policies. As such, they view Bitcoin as a risky asset and when inflation is hot (latest 9.1% print), they back off risk – especially when interest rates are high (a “quantitative tightening” (QT) environment). In general, “cash is king” is a common statement in traditional finance and the current monetary system for many investors. Institutions sell risk (risk) assets and buy cash (US dollars) and cash flow stocks when DXY is up.
Note that gold and silver have fallen significantly in the past few weeks. So, what happened to their secure value storage proposal? nothing. It is possible that the same proposal still stands. It’s not about the assets themselves, it’s about accumulating dollars at the moment. Having cash is better for institutions and investors than owning valuable but illiquid assets. Remember that institutions consider cash as king in times of high inflation and QT.
To reiterate, Bitcoin is only 13 years old and it takes time for retail and institutions to realize the true value of Bitcoin. At the moment, institutional investors still view cash as king, and many in the retail space still don’t understand what kind of money Bitcoin represents. So, for now, we’re still stuck in the monetary world of the Federal Reserve.
Fed policy is unsustainable. They know it, and we know it. They cannot and will not stop printing by adding liability to their budgets (debts to be repaid by future generations). What’s the solution? Bitcoin is the answer. Sure, cash will still be king in two months, but in two years the cash will be back in its original form: trash. Meanwhile, bitcoin will continue to do its job and investors (individual and institutional) will realize its value.
The following statement is relative: “Bitcoin is a hedge against inflation.” I say relative because for someone who bought bitcoin years ago (before 2017), this statement is true. But for someone who recently bought, this statement is taken with some skepticism. In the long run, it is definitely a hedge against inflation.
A default swap or credit default swap is an insurance tool that organizations use when they own a bond issued by an issuer such as a corporate or government bond. They can buy insurance against the failure of this bond (the issuer’s default). For institutions and investors, Bitcoin can and should be their default swaps when the Fed fails. Bitcoin protects your wealth from deterioration and protects you like CDS over government. Bitcoin is your insurance policy against the entire government’s monetary policy and “fraud code” (also known as the dollar).
The future is almost completely digitized. Money will be no different Bitcoin is undoubtedly the only solution to a healthy, immutable and secure digital money that gives people their sovereignty. Banks are counterparties. Goldman Sachs, NYSE, Vanguard, Fidelity and other counterparties are. With bitcoin, you own the entire asset and not the underlying asset. In today’s system, reliance or hope is on the counterparty to fulfill the end of the obligation and give what is owed to you when you need to liquidate an asset. Bitcoin turns this on its head with a neat system of incentives, crypto, supply cap, decentralization, and a network that anyone can participate in.
Increasing your purchasing power comes second. First, you have to protect purchasing power. How do you protect your purchasing power? Bitcoin.
This is a guest post by Adam Taha. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. Or Bitcoin Magazine.