Bitcoin’s YTD performance of 45.95% in 2020 is impressive despite high volatility and underperformance in comparison to other digital assets like Ethereum and DeFi tokens.
However, as the most dominant coin in the crypto market, Bitcoin serves as the point of reference for analysts’ evaluation of the crypto market vs. the traditional market.
In a time of limited potential, Bitcoin should benefit the most and in the process trigger an increase in the value of equity and bonds, according to the Senior Commodity Strategist at Bloomberg Intelligence, Mike McGlone.
“#bitcoin is a standout fixed-supply asset that should be a primary beneficiary in a period of limited potential further upside in equity and bonds in our view.”
Bitcoin Has Superior Control over Inflation
The ongoing massive Quantitative easing as governments expand fiat currencies to support coronavirus fiscal measures has led to reduced faith in the economy, leading to more major investors exiting the traditional market.
“#QE juxtaposed vs. tightening Bitcoin supply leaves adoption and demand as the top price-outlook metrics.”
As fiat inflation continues to grow and potentially spin out of control, Bitcoin’s monetary policy is written in its code and reduces by half every four years during its halving event.
Gemini crypto exchange’s Cameron Winklevoss recently stated that Bitcoin is a unique commodity whose supply does not depend on demand and cannot recklessly be expanded, unlike other known stores of value.
“Bitcoin is the first commodity in the universe where supply does not follow demand. Demand for bitcoin does not and cannot, expand its supply.”
Bitcoin has also been referred to as the only sovereign currency of the internet by notable personalities such as Twitter’s Jack Dorsey, a fact that could see its market cap’s potential to reach tens of trillions of dollars.
However, for Bitcoin to reach such a potential, investors continue to insist that it would need to have an economy built around it to minimize the influence of speculators and traders on its price movements.
Many companies such as MicroStrategy have recognized and adopted Bitcoin’s value as a practical hedge against fiat inflation, but the rise of DeFi will also play a key role in establishing the needed economy around Bitcoin.
High Fiat inflation is good for Bitcoin’s success
Compared to the stock market, alternative stores of value have performed better in 2020, due to massive inflation as investors seek to reduce their exposure in fiat currencies.
“#Gold and #Bitcoin ended Sept.21 about 25% and 45% higher in 2020 vs. an almost unchanged S&P 500, indicating a relative value tilt.”
According to McGlone, Bitcoin and other top cryptocurrencies are good examples of Quasi currencies which are high liquidity assets that are not money but can quickly be converted to cash.
“The certainty of QE vs. fiscal stimulus uncertainty and a wobbly #stockmarket is a foundation for performance-baton pass to the quasi-currencies.”
Bitcoin stands to benefit from traditional investors’ sentiment, who are unsure of how high inflation will rise as the governments watch. This uncertainty, as McGlone stated, will favor Bitcoin and other cryptocurrencies.
“A shift from momentum toward relative value is potentially at hand, favoring #Bitcoin and #cryptocurrencies vs. the #stockmarket.”