Bitcoin is gaining more and more supporters and recognition, but not across the board. The Bank of America wrote Bitcoin “blows the doors off prior bubbles” and thus strikes against the leading cryptocurrency.
Michael Hartnett, the chief investment strategist at Bank of America, found clear words about the current situation. As a result, a multitude of indicators created a “toxic brew in 2021”. The fact is, about $ 10 billion went into stocks, 29 billion into cash, and 1.5 billion into gold last week, according to the bank’s data. At the same time, Bitcoin’s market capitalization increased by around $ 133 billion, and the good people at Bank of America obviously don’t like that at all.
Even if it is not clear how much money actually went into Bitcoin, it was certainly a lot. GrayScale alone reported at the end of December that around half a billion dollars a week found their way into Bitcoin.
The narrative of Bitcoin as digital gold is paying off
Investors have withdrawn money from gold and invested in Bitcoin, as the digital currency obviously reacts much faster to the mass printing of money. Plus, it is increasingly adopted as a portfolio diversifier even by large companies after numerous studies concluded that Bitcoin increases risk-adjusted returns.
Instead of cash, BTC is now being held as reserves and that the banks and governments do not like this is understandable from their point of view. The blow against Bitcoin is therefore not surprising, but it puts the current development in the wrong light.
Without a doubt, the parabolic rise in the Bitcoin price can quickly be perceived as a bubble. However, the term “bubble” has negative connotations for many when it comes to investing. It implies that something is far beyond its real value and has constructed a house of cards that cannot help but collapse completely at some point. But it is not entirely correct and why I am going to explain to you now.
Why blistering is completely normal
Bitcoin is special in many ways. Above all, however, it is the market launch of the digital currency that sets it apart from what we otherwise know.
Startups such as Facebook or Google once were closed to the public in their early phase by virtue of the Securities Act 1933. That means that at this stage, where there is rapid growth and rapid appreciation, the company is not publicly traded and therefore has no price that we can all track the movement of.
However, it has a private price tag that is only accessible to well-heeled investors and banks. If this price were also shown publicly and constantly updated in real time through public trading, it would quickly become clear that the price developments of such companies also look like a huge, massive bubble. Only when the company has completed its parabolic price increase in this growth phase do early investors realize their immense profits in the form of an Initial Public Offering (IPO) in which they sell their shares to the public. So it was done on Facebook, Google, and every other public company.
So it’s not that Bitcoin is a bubble that eventually bursts and more or less disappears into nothing. Rather, it is the first time we are witnessing real, public pricing of an asset from the very beginning. We are in the phase in which the true value of the underlying valuable asset has yet to be found during its growth phase. It’s no different than with all the startups out there, only that in this case we can follow it without any problems and even have the freedom to get involved.
Bitcoin was publicly tossed on the open market with a starting price of $ 0. The market itself has decided that 1 BTC is currently worth around $ 40,000. Nobody else. The volatility, which shows in parabolic price increases and harsh corrections, only reflects the uncertainty of a free market about where the real value of the digital asset is currently to be applied. After all, that’s not that easy either, because something like Bitcoin has never been there before. So we lack accurate comparison values that we can use. But Bitcoin is not a bubble that bursts and disappears at some point. On the contrary, because it is an unprecedented opportunity for the „little man“ and the „little woman“ to be there from the start and also to benefit from the parabolic growth phase. But clarifying about it is probably not in the interests of Bank of America. But in ours!