Price volatility and events like the halving make headlines, but overshadow a continuing (and important) trend.
Saying that crypto prices, and specifically bitcoin prices, have been making headlines during May 2020 would be an understatement. Bitcoin volatility by itself, running up and dropping down by double-digit percentages, is a topic guaranteed to generate headlines and media discussion. Add in the recent bitcoin halving and the announcement that Paul Tudor Jones is allocating capital to bitcoin (futures), and the recipe for renewed optimism is complete.
Additionally, round numbers attract attention; the rise and fall of bitcoin around the $10,000 threshold was no exception.
Exciting as this is, and the increases in crypto prices are definitely exciting for investors, it overshadows a larger and more important point. Crypto is continuing to grow and become an established and mainstream asset class that is attracting capital from high profile investors. This might seem like an obvious point, but digging deeper, the increased focus and attention on the price movements of bitcoin and other crypto seems to be resolving what has been an item of discussion since bitcoin burst into the mainstream during 2017.
Are crypto, and specifically bitcoin, going to evolve and be used as an everyday fiat alternative, or will the ecosystem evolve into an alternative asset class? Both are possible in theory, but the focus on price seems to be pushing the conversation in one direction.
The crypto price paradox
Focusing on the prices of bitcoin and other crypto undermines, to mainstream businesses and individuals, the original use case. The likelihood of non-experts feeling comfortable using a medium of exchange that can rise or drop by thousands of dollars in a single day is tenuous at best. Established players, including the very same financial institutions bitcoin was designed to disintermediate, have developed peer-to-peer applications that allow individuals to transfer funds via smartphones and other mobile devices.
Why would merchants and individuals accept payment via a volatile medium when dollars can be transferred via mobile devices, in real time, with the backstop of the banking system?
Bitcoin improvements and more recent applications have made it easier, simpler, and cheaper to exchange crypto on a daily basis, but the appeal of incumbent tools is difficult to ignore. In other words, the very rise of bitcoin and the attention on price levels have led to the development of strong competitors already being used by millions of Americans on a daily basis.
Even positive news for bitcoin holders, like the dramatic increase in prices during 2017, led to a period of slower and most costly transaction processing. This event, among others, contributed to the bitcoin forks that further complicate the use case for non-experts. Forks have since become more a part of the general blockchain conversation, but still remain potentially confusing for non-expert users.
By focusing on the price volatility, crypto bulls and other proponents may have actually shrunk the potential market of daily crypto users, at least for the time being.
Crypto as an asset class
Bitcoin and crypto may not have caught on as rapidly with individuals as was initially hoped, but that is only a partially correct point of view. As an increasing number of institutional investors and large pools of capital allocate funds to bitcoin and other crypto, these cryptoassets become more embedded in the mainstream financial system. Alternative assets have long had an important role to play for any number of investors as hedges, inflation protection tools, and investments in their own right. The most recent headline by Paul Tudor Jones may have reinvigorated the conversation around bitcoin as an investment class, but that is far from the only move in this direction.
Bitcoin may have been the tip of the proverbial iceberg with regards to blockchain and crypto awareness, but that very awareness and subsequent price volatility might have undermined its initial use case. That said, there is an enormous addressable market for alternative assets, and that is a market that bitcoin and other crypto seem well positioned to address. As this market becomes increasingly populated by crypto, reporting and disclosure standards will improve, which in turn will help reduce volatility and increase wider adoption.
Price volatility and events like the halving generate headlines, but the real news might just be the growing acceptance of crypto as a legitimized and mainstream alternative investment class. And that is a good thing for both crypto and blockchain generally.
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