Where finance is concerned, Bitcoin has never been out of the news. Recently, Jurrien Timmer, Director of Global Macro at Fidelity, called Bitcoin "exponential gold." Having been associated with Bitcoin for quite a long time now, I find this very interesting and genuinely incisive.
Timmer's statement drew my attention to the astounding ability of Bitcoin to act as a store of value. Unlike traditional assets like gold, Bitcoin is entirely in digital form and, by its very design, rare. Since there will ever be only 21 million bitcoins mined, rarity is one of the most vital selling points that any cryptocurrency possesses. This scarcity, coupled with growing acceptance, makes Bitcoin an especially compelling alternative to traditional stores of value.
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What makes a big difference for me in Bitcoin is the underlying technology. The decentralized nature of the network means that no single entity controls it. This kind of decentralization would make it transparent and secure—qualities that, within the shifting financial environment, are becoming increasingly important today. Timmer likens the development curve of Bitcoin to such revolutionizing technologies as the Internet and mobile phones—not without some point. As these technologies did to our lives, Bitcoin does to our view of and relationship with money.
Another interesting point brought up by Timmer was related to the adoption rate of Bitcoin. He underscored that although the growth of the Bitcoin network has slowed down recently, its price has continued to rise. This is one of the most exciting parts of the divergence between a network's growth and its cost. This means that the value of Bitcoin is not only related to the number of people using it but also to its perceived value as a credible asset. Even as adoption slows, as it has over the recent past, people still believe in Bitcoin as a worthwhile investment, and that is why its price keeps going up.
I will also appreciate the fact that Timmer has been able to point out the role short-term investors have been playing in Bitcoin market dynamics.
On-chain data suggests that Bitcoin is closing in on a critical level: the "realized price" of short-term holders. In essence, this realized price is the average cost at which investors have acquired their Bitcoin. When the current price stays above this level, most investors will profit, thus driving further buying.
On the other hand, if it trades below this level, selling pressure could be exerted as investors try to cut their losses.
This becomes a very relevant metric, especially now that Bitcoin is inching closer to the retest of this realized price. According to historical data, such retests often lead to big swings in the market. Sometimes, Bitcoin finds support and then bounces back; other times, it loses even more ground. The way this retest goes could be significant in defining Bitcoin's immediate prospects. Being interested in Bitcoin, I shall wait with bated breath as this unfolds. The view of Timmer goes in line with the increasing recognition Bitcoin gets among institutional investors. Players such as Fidelity critical financial institutions are starting to recognize that Bitcoin is here to stay and entertaining where a place could be found for it in their investment portfolio—it's terrific news. Besides lending credibility to Bitcoin, interests like these foreshadow ever greater entrenchment into the system during the upcoming years.
