Guest post: Anyone who sees a new currency in Bitcoin will wake up from the dream
Bitcoin, the most famous cryptocurrency, has had a fantastic run since March. So has he now also received the higher ordinations as a safe haven in uncertain times? Or is the current hype coming to an abrupt end, as has so often been the case? One thing is clear: the established financial world is not happy about the new competition.
By the end of 2020, the total global debt (states, companies, private individuals) will have increased by around 20 trillion US dollars to 277. The deficit criterion – indebtedness to global economic output – will have increased to 365 percent even in the face of a shrinking economy. Improvement is not in sight. For example, Germany is now planning EUR 180 billion more debt for 2021 instead of initially 96 and later 160. And in Europe there are loud and prominent voices who want to make the coronal reconstruction work permanent. The debt party is financed as usual by the well-oiled money printing machines of the central banks. With oomph in public financing!
In general and despite rising credit risks, higher interest rates are excluded. They would blow the light out of the financial system. In addition to the interest diet, the inflation trend will also lead to famine among interest savers. As soon as the lockdown situation through vaccines eases, the purchasing power that has been forcibly withheld until now will break out. But even then, the central banks will not restrict interest rates or liquidity. Because when prices rise, debt is inflated away. You won’t be without this free lunch menu.
Robert Halver is Head of Capital Market Analysis at Baader Bank.
In contrast to (debt) money that can be increased at will, the maximum amount of Bitcoin is limited. As a rare commodity, it represents a valid protection against inflation.
This digital defense, incidentally also in terms of penalty interest and thus expropriation, has meanwhile also attracted smart investment capital like plum cake the wasps. Even the previously unruly asset managers and banks are open to the crypto world.
Of course, inflation protection also applies to gold, but Bitcoin has a technical advantage. Because it is a virtual, not a physical quantity, it can be carried anywhere without “back pain”. This seems to be convincing at the moment: a marked outperformance on gold has been observed since October.
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Large investors also like the fact that the price of a Bitcoin does not depend on the profit prospects of a company or the level of debt of a state. And the correlation between Bitcoin and stocks, e.g. the US leading index S&P 500, has been low for many years and thus offers a good balance of risk. It was only higher in the special situation at the beginning of the year, when all investors sold all risky assets.
But Bitcoin also seems to be escaping its exotic corner operationally. Its commercial use continues to expand. PayPal customers in the USA will soon be able to use it for payments at online merchants. Audio streaming services have also opened up to crypto payments.
All of this seems to indicate that the current Bitcoin surge is well underpinned in terms of stability policy and fundamental. And since, in contrast to the record high in 2017, inflationary reporting on Bitcoin in the mainstream according to Google Trends has not yet been observed, the market does not seem to have overheated yet. So overall good prospects for new all-time highs for Bitcoin, right?
The financial empire strikes back
The old financial system and its institutions view the development of cryptocurrencies with great suspicion. They fear losing their status as the top dog in the financial sector.
For (money) politicians in the western world it would be sheer horror if Bitcoin became a dominant alternative currency. Then the previously so easy and pleasant public financing through unlimited generous central banks would not only lose its bite. In the end, they could be toothless. But what cannot be cannot be. Nobody should underestimate political defense readiness. Just don’t create immutable facts.
And so the old financial world will put obstacles in the way of the cryptos. To this end, they first pointed out the lack of control over non-governmental cryptocurrencies, which opened the door to money laundering, tax evasion, drug and cybercrime and hacker attacks. This is how you create arguments for countering the wild growth. In general, the Damocles sword of a ban is still hovering over crypto currencies.
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But European politicians also know that there is no getting around digital currencies. So they make a virtue out of necessity. With the introduction of their own state digital currency, they want to keep the upper hand in virtual payment transactions.
The advantage of a digital currency in Europe over a Bitcoin is that it is anchored in the common currency of the euro. As a result, their value cannot suddenly and violently burst up or down as with cryptocurrencies. There is no doubt that Bitcoin history shows a dramatic range of fluctuation. Last but not least, anonymous owners of gigantic Bitcoin fortunes repeatedly ensure that price movements are not very transparent. In direct comparison to this fickle outlaw, the euro is downright a good monastery student.
Indeed, only stability makes a currency a reliable and thus widely accepted means of payment. It is not for nothing that world currencies enjoy a higher security status than those from emerging countries.
This previously massive volatility does not make the Bitcoin a good store of wealth either. Bitcoin is not a patron saint for purchasing power. In terms of the long-term store of value, gold remains the first choice.
Do not look at Bitcoin ideologically, but like any form of investment
Overall, as with any other form of investment, there are pros and cons with Bitcoin. Even if it hits a new record high, it is not immune to heavy losses either. In our Fomo world (fear of missing out, i.e. fear of not being there), mega-bulls can become bears again in no time. When vaccines find positive economic effects, the voracious hedge funds set off like grasshoppers for the next plantation. That’s business as usual!
Bitcoin is an attractive investment idea. And there is no reason to condemn him, especially since he is benefiting from the liquidity boom. Those who can withstand the volatility should devote themselves to it with joy.
Yes, Bitcoin is now part of the investment family. But it is not a substitute for stocks.
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