Bitcoin continues to rise in financial markets
Bitcoin has been compared to gold due to several fundamental characteristics that the two assets share. Both gold and bitcoin have a limited supply (although gold’s actual limit remains undetermined), investors and analysts often describe both as countercyclical or a hedge against inflation, and for most investors, these assets represent only a modest percentage of overall investments. The recent selloff sparked by fears of a U.S. recession due to weaker-than-expected economic data and a surprise rate hike by the Japanese central bank has spread to global markets and asset classes. Bitcoin and cryptocurrencies have not been immune to this selloff, with prices briefly dipping below $50,000 before recovering in the days following the selloff.
Such volatility and a seemingly direct correlation between bitcoin, other cryptocurrencies, and financial markets in general challenge the idea that bitcoin is a digital version of gold. If bitcoin, as it has, follows general market movements and reacts similarly to geopolitical, economic, and interest rate data, how is bitcoin different from other financial instruments? This argument, while compelling on the surface, overlooks several points of differentiation between bitcoin and gold. In fact, the fact that bitcoin may not be the 21st or 22nd century version of gold bodes well for further adoption of bitcoin and other cryptoassets.
Let’s take a look at some of them.
Mainstream cryptocurrency passes its first major test
The recent dramatic price drop was the first major correction and pullback in cryptocurrencies since retail and institutional investors gained exposure to bitcoin through spot ETFs launched in January 2024. While prices continue to recover from the dramatic drops that have taken place, there are several important developments that are worth highlighting as positive developments. First, according to a study by Bloomberg Intelligence, and amid the first major price drop since their inception, only about 0.3% of assets under management have exited these ETFs.
Additionally, crypto wallets holding between 1,000 and 10,0000 bitcoins have consistently increased their holdings during the sell-off, indicating that long-term and potentially institutional investors have maintained confidence in bitcoin’s value proposition. Finally, it is worth noting that starting August 7, Morgan Stanley began allowing its 15,000 financial advisors to offer spot Bitcoin ETFs to wealth management clients who met certain qualifying criteria. Against this backdrop, Morgan Stanley’s wealth management business had approximately $6.6 trillion in assets under management as of the end of 2023.
Bitcoin and cryptocurrencies represent technological innovation
Unlike gold, which has remained unchanged for millennia, bitcoin and cryptoassets in general represent significant technological innovation and advancement on multiple fronts. The possibilities of self-sovereign identity, portable and immutable data across multiple industries, instant access to funds and payments, and real-time analytics continue to move from concept to reality around the world. These innovations, along with the benefits that blockchain-based insights can bring to AI applications—by providing a pool of reliable and readily available data to work from—set bitcoin apart from other comparable commodities such as gold.
The fact that virtually every major international financial institution has invested in developing blockchain and cryptocurrency-related products and services clearly illustrates this point. Moreover, with legislation being drafted that would require the Federal Reserve to convert its gold holdings into bitcoin, the benefits of dumping gold into bitcoin continue to be a subject of broader discussion.
Cryptocurrency is well represented in the 2024 presidential race
From a topic discussed primarily on online forums and message boards, cryptocurrency has become a talking point at every level of the 2024 U.S. presidential campaign. From crypto superPACs raising over $100 million to fund elections and advance cryptocurrency-specific issues, to swing voters consistently citing cryptocurrency as a major policy issue, to candidates publicly revealing their pro-cryptocurrency views and cryptocurrency holdings (Republican vice presidential candidate J.D. Vance), cryptocurrency has quickly moved to the forefront.
This highlights not only the price rally that has occurred in 2024, but also the speed at which bitcoin and other tokenized financial products (payments and otherwise) have invaded the broader investor market. As discussions around the role of cryptocurrencies as a strategic asset continue to grow, institutions continue to invest in and purchase cryptocurrencies, and bitcoin survives its first major decline of the retail era, cryptocurrencies appear to be a political issue that is here to stay.
Bitcoin is not gold, it’s better.
