Since the news broke that Donald Trump will once again become President of the United States, bitcoin has been impossible to ignore. Not only because of its record-high prices but also because bitcoin’s acceptance as an investment class and alternative form of “value” appears to be accelerating.
Adorable
I must admit, it’s rather adorable seeing all these self-proclaimed bitcoin experts on LinkedIn announcing they are “here” to explain bitcoin to us. They dutifully check off the well-worn list of bitcoin’s supposed benefits. Don’t get me wrong, there are some impressive qualities on that list, like unique scarcity, decentralisation, immutability, and transparency.
But in the end, it really comes down to whether investors, entrepreneurs, policymakers, central bankers, and ultimately, the general public see any value in it and want to engage with it. The key question is whether there is a large enough group of people willing to embrace this alternative form of scarcity, value, and trust and thereby at least partially transform the current financial system.
Ripple effect
It is nearly impossible to make an objective observation or analysis of bitcoin. I should know. Every time I say something less-than-glowing about bitcoin, I am hit with a wave of accusations, complaints, and worse.
Yet, it can be reasonably concluded with an objective eye that bitcoin has broken through as a legitimate part of financial markets this year. Spot bitcoin ETFs have shattered all previous records, the number of companies holding bitcoin on their balance sheets is steadily growing, several US state pension funds have invested in bitcoin, and a British pension fund recently announced a 3 percent allocation to bitcoin.
Trumpcoin
Since November 5th, we also know that the man set to become the most powerful person on the planet (whether you like it or not) has jumped on the “bitcoin train”. He is joined by the world’s richest man, who has had bitcoin on the balance sheet of his “car company” for years. It should be clear that Trump’s focus is primarily on America and the dollar, a fact bitcoin investors should keep in mind. But let’s be honest: who would have thought four years ago that the President of the United States would aim to make his country a “bitcoin superpower”?
This has far-reaching international implications. The very fact that Trump appears to be taking bitcoin seriously—though caution is warranted—means the rest of the world will also have to think carefully about their approach. The words of German independent politician Joana Cotar were telling: “If the US buys bitcoin as a strategic reserve, all European countries will suffer from ‘FOMO’.” Germany has already forfeited over 1 billion euro due to a technical valuation rule that forced it to sell the 50,000 bitcoin it held.
A new regime?
The investment world seems to be tentatively moving beyond the overly simplistic “but it has no intrinsic value” argument. Cautiously, as the number of investors clinging to the “yes, but no cash flows” stance remains large. Incidentally, you can create a dollar bill for five cents. That bill only has value because of trust in the system and the associated institutions that allow you to buy goods worth one dollar with it.
As long as the number of dollars, euros, yen, and pounds—without any backing—keeps rising at such an astonishing rate, it makes sense for people to wonder if we are overstretching trust in the system. This only strengthens the case for anything scarce.
Sacred cows
Yet, while bitcoin maximalists celebrate, a dose of nuance is essential here. Despite this year’s breakthroughs, there are two critical reasons why the recent acceptance of bitcoin shouldn’t immediately be seen as a decisive victory. The first is the “sacred cows”. This is something the know-it-all bitcoin experts don’t seem to, or don’t want to, understand.
The majority of the investment ecosystem is built around stocks and bonds. Introducing bitcoin into the mix puts entire business models under pressure—a prospect that CEOs, shareholders, and other stakeholders don’t typically welcome. It’s not necessarily that these stakeholders don’t understand bitcoin, but that this outlier doesn’t serve their interests, which naturally breeds resistance.
This brings us to the second point. The chance that bitcoin will ultimately die a slow death is not zero. When established entities feel threatened by bitcoin, they will respond. Central banks with their programmable, privacy-sensitive central bank digital currencies (CBDCs) are a prime example. A glance at the ECB’s website shows a group of predictable grey men worrying as if their lives depended on it—which, in a way, they do.
If central bankers, politicians, and traditional investment giants unite to, say, ban bitcoin, the outlook would become significantly less rosy. Aside from the original cypherpunks, most people would likely abandon it if it risked giving them a criminal record.
That said, I believe 2024 will clearly show that we’re moving in the opposite direction. bitcoin seems on its way to becoming a fully-fledged member of the elite group of asset classes. Whether this means Trump will become “The Crypto President” is something I wouldn’t dare to predict.
Jeroen Blokland analyses noteworthy, current charts on financial markets and macroeconomics in his newsletter, The Market Routine. He is also the manager of the Blokland Smart Multi-Asset Fund, which invests in stocks, gold, and bitcoin.