Bitcoin’s price action is undoubtedly impressive this year, but there’s more to the story with the largest digital currency, and investors considering exposure to the asset should educate themselves on bitcoin mechanics.
Bitcoin has sometimes been referred to as “digital gold” with supporters suggesting it could be a good safe-haven investment. However, bitcoin has tended to trade closer to equity markets in recent times and has been plagued by massive volatility, which has either made investors fortunes or crushed them.
“Instead of relying on centralized intermediaries to enforce its rules, Bitcoin relies on a distributed network of computers,” writes ARK cryptocurrency analyst Yassine Elmandjra. “This architecture enables it not only to function outside the purview of legacy systems but also to challenge them. While the full ramifications of Bitcoin’s creation are not well understood, we believe that it will contribute more dramatically and profoundly to the evolution of monetary and financial systems than any other breakthrough in history.”
Not Just Relevant, But Disruptive, Too
Bitcoin, the largest digital currency by market capitalization, has its share of critics and supporters. Integral to the case of expanded acceptance and use of the digital asset is conveying to investors that bitcoin has a store of value properties, whether it be by measuring intrinsic or monetary value. Moreover, bitcoin represents freedom at a time when so many governments are actively increasing capital controls.
“In the long run, institutions risk making decisions favoring those in control at the expense of customers, users, or citizens,” notes Elmandjra. “During the last 10 to 15 years, countries have been increasing capital controls rather than decreasing them. Since 2007, the share of countries increasing capital controls has soared 300% to 15%, while the share of countries reducing them has dropped 60% to 5%.”
Bitcoin’s historical volatility trends, which have ebbed somewhat, have often prevented some market observers from calling the digital asset a safe-haven on par with gold, but the coronavirus headlines could be prompting some investors to revisit that thesis. There’s no denying there are some exponential growth estimates associated with bitcoin. Plus, the digital asset is all the more relevant today with the world awash in low and negative interest rates.
“In the face of unpredictable changes in monetary policy, individuals typically have to grapple with the fallout. If a central bank mismanages its country’s money supply, fiat money can lose its purchasing power to inflation, if not hyperinflation,” according to ARK.
ETFs with some bitcoin exposure, be it direct or indirect, including the ARK Fintech Innovation ETF (NYSEARCA: ARKF) and the ARK Web x.0 ETF (NYSEArca: ARKW).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.