We managed to break the $ 50K barrier, but we lacked strength. The idea is not to break the barrier for a few pennies to get back down to the $ 40K band. It is about breaking definitively and adopting a new support. A lot has happened since the PayPal announcement. And, since then, many major players have followed in the footsteps of the payment platform by becoming buyers of Bitcoin. Of course, we owe this latest bullish wave to Tesla and MasterCard. This is the renewed enthusiasm of the last few days.
Validation breeds optimism. And optimism generates purchases. Purchases raise the price. And the price rise becomes a self-fulfilling prophecy, because it in turn attracts more buyers. Bullish appreciation, speculative bubble, FOMO, or life chances? Whatever it’s called. But that’s the way Bitcoin is.
Keep reading: The Bank of Spain warns about the “high risk” of cryptocurrencies. It is true?
Obviously, financial speculation was not born with Bitcoin. In fact, this boom is not exclusive to Bitcoin. Bitcoin has been just one of the beneficiaries of a much broader boom. This exuberance that we see in financial markets is essentially artificial. In other words, it is induced by circulating liquidity. You could say that it is the responsibility of the capital markets. A capital market controlled primarily by central banks. By the Federal Reserve of the United States in the first place.
In other words, it is raining money. But the money is not falling directly to the ground. It accumulates on the ceiling. What has created two very different realities. Those above and below. Those at the top are getting a deluge of liquidity and those at the bottom are getting the leaks. In other words, the Fed’s monetary policy has mainly benefited Wall Street by creating a K-shaped recovery. The great absent has been fiscal policy. Investment in the real economy has not been present. Deflation has hit the economy hard because money has been used almost entirely to inflate the value of financial assets. Bitcoin included.
Here the problem is not inflation. In fact, it is the opposite. The problem is deflation. This deflation has been caused by a drop in demand as a result of the coronavirus crisis. Now, central banks are right to inject liquidity to raise demand and revive the economy. The fault lies in the governments and their inadequate fiscal policy. I mean, they are not investing in people. The asymmetry of the stimuli is what has caused such an uneven recovery.
For better or for worse, the truth is that liquidity has generated a boom in financial markets. Financial assets are through the roof and speculation is in vogue. The technology and financial sector have benefited greatly from the acceleration of the digitization process promoted during the coronavirus crisis. Well, Bitcoin has gotten into all of this. In fact, it is the combination of several things: the fintech boom, social media, big tech, digitization and liquidity. In short, there is interest and there is money.
Read on: Why didn’t Jeff Bezos adopt Bitcoin?
Millennials, robinhood traders, social trading, digital payments, and the internet as a whole have come together to speculate on future trends. One of them is Bitcoin. People want options. And companies know that diversity is the future.
Elon Musk is an advertising wizard and knows millennials like no one else. Sure, Tesla is an overvalued stock. Its market capitalization is not supported by sales. It is supported by subjective elements. Tesla is essentially the promise of a possible future. But, like it or not, in today’s world this is enough.
Elon Musk walks like a fish in water within the Bitcoin world, because Bitcoin is a purely fiat asset. Which actually means that Bitcoin is sustained by subjective elements. Bitcoin does not have to submit sales and income reports. Bitcoin is your exchange rate. The meeting of buyers and sellers. Its value is in the minds of the people. Elon Musk knows a lot about that. He bought Bitcoin with the sale of Tesla shares. Quite a smart move. In fact, Tesla has already made more money from its purchase than from the sale of its products.
Elon Musk’s economic success has always been in the speculative frenzy his projects arouse. In other words, it has never been a large, successful-selling industrialist. That’s what he promises us. But his fortune was born from investor speculation. In other words, raising capital. Bitcoin fits him like a glove. And Bitcoin has a great ally in it, which with a tweet can move the price. We must remember that Bitcoin is a faith-based asset. If there is faith, there is courage.
The case of PayPal and MasterCard is slightly different than the investment by Tesla. His approach to Bitcoin is a constant search to offer the user more options. Obviously it is not about the libertarian revolution of the Bitcoin pattern. It’s not about that. Here we are not talking about the abolition of the dollar, the end of the banks or the separation of the state and the economy. Here what prevails is pragmatism. MasterCard saw an opportunity and took it. They know very well that they must offer the Bitcoin option, because sooner or later, their competition will. People want options. They don’t want the single, private currency of utopia would liberate, but they do want the Bitcoin option in a plural world.
Read on: Elon Musk’s Magic Touch: Genius or Charlatan?
Bitcoin is here to stay. And the excitement is sure to continue due to new announcements. The most sensitive issue from now on will be regulation. Regulation can definitely end the party. An ambitious politician or official looking for a trophy can be very dangerous. Here we may have a setback in case a witch hunt against Bitcoin is started.
Now, everyone has their attention on the coronavirus crisis. Furthermore, as more companies become buyers of Bitcoin, Bitcoin will become too big to fail (“Too big to fail”). In the not too distant future, a Bitcoin crash could hurt the world’s top mutual funds. No authority will want to be responsible for such a drop, because that means that many investors will take the hit. That would have a very high political cost.
Bitcoin has risen in price, because institutional capital is buying. And they are buying, because they have the liquidity to do so. The Fintech sector is a trend. And Bitcoin is a very attractive option within that trend. More ads, more buyers, and more Bitcoin-related products are coming. However, we must also be prepared for increased regulatory pressure in the future. On the other hand, we must also be prepared for when central banks begin to withdraw liquidity from the system. Bitcoin has a future. But we cannot assume that everything will be rosy.