It’s not likely to be a linear move to the upside, but Bitcoin will find price support if not significant appreciation from its rapidly rising adoption case.
The good news is the adoption trajectory for Bitcoin looks compelling. Looking at the S-curve, which measures adoption of new technologies, Bitcoin is right where it should be according to many market observers.
“Utility value refers to the benefits that the technology provides, reflected by its demands. Speculative value is when investors believe the technology is worth a value based on future expectations,” according to WisdomTree research. “Both factors are essential in advancing a system’s expansion—utility value is unsubstantiated if speculative value doesn’t grow, and conversely, speculative value is artificial if utility value doesn’t follow. Bitcoin’s recent growth is fueled by both aspects. Its ecosystem has matured, leading to more applications in real life. In anticipation of its wider adoption, financial institutions started delving into the crypto space, resulting in a strong inflow of capital.”
See also: WisdomTree Files for a Bitcoin ETF
Bitcoin’s Adoption Case Growing Stronger
Businesses and currencies exist for roughly the same purpose: to facilitate the exchange of value. Fiat currencies like the U.S. dollar are positively primitive compared when compared with the promise of blockchain and the emerging token economy, which some technologists have taken to calling an asset operating system.
Shifting attitudes at the corporate level are supportive of more Bitcoin adoption.
“The current inflationary and low-yield environment aids the financial asset narrative, as fiat money and bonds become less attractive vehicles to store value,” adds WisdomTree. “Furthermore, companies’ plans to accept bitcoin and blockchain technology’s applications demonstrate one aspect of bitcoin’s utility value. Bitcoin’s growing influence has boosted end clients’ interests to capture the potential upside of this new technology. Their interests have in turn encouraged asset managers to incorporate it into portfolios.”
Recently, Tesla said it bought $1.5 billion worth of Bitcoin, which will be accounted for on its balance sheet as goodwill. Having $1.5 billion worth of Bitcoin on hand will provide the automaker with sufficient liquidity to conduct business in the cryptocurrency. Some financial pundits are suspicious of Tesla’s move into Bitcoin however, as it represents an investment of a large percentage of its cash — over 7% of the more than $19 billion that the automaker possessed in cash and cash equivalents on hand at the end of 2020, according to its most recent filing.
“As bitcoin grows organically and realizes its utility value, we believe its speculative value will be gradually substantiated. At this moment, we are witnessing the beginning of a new paradigm, shifting away from a quasi-exclusive retail asset to a more widely accepted financial instrument,” concludes WisdomTree.
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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.