Suppose you live in the South of France: the Boulangerie (and every other shop for that matter) is Brexit sceptic, but you’re being paid in Pounds. Naturally you convert to Euros. It makes life easier. It makes sense. But why would anyone convert Sterling, or any other currency for that matter, into Bitcoin? You can’t buy bread with Bitcoin, it won’t get you a ticket on the Underground and Amazon doesn’t take it for any kind of lockdown delivery. As a non-fiat cryptocurrency, it’s about as much use in your purse or wallet as an IOU signed by Donald Trump.
So why is the value of Bitcoin skyrocketing?
Last week it was trading against the US Dollar at a staggering $27,000 …and there’s no sign of it slowing down any time soon. The aggregate value of Bitcoin is now more than $500 Billion, which exceeds the market capitalisation of MasterCard and it’s twice as much as IBM. Over the last ten years a single dollar invested in Bitcoin has consistently returned more than $100 invested in the S&P 500.
BlackRock (www.blackrock.com) now predicts Bitcoin will replace gold as a reserve of last resort.
What’s that all about then?
Part of the reason, for sure, is the limited number of Bitcoin in circulation: when the cryptocurrency was launched in 2009 (we still don’t know who did it) the number of “wallets” was restricted to 21 Million, and latest estimates suggest the number of unique users is now hovering at something in the order of 18 Million. The rate at which new Bitcoin reserves are released decreases by half every four years, so naturally investors believe its value can only go up as demand increases. Economists call it Says Law (www.investopedia.com), where increased demand combined with limited supply means a higher price. And functioning as it does through a decentralised Blockchain ledger, the Bitcoins in this restricted wallet can be converted into other currencies, products and services on the Internet, so it gives them “real” market value.
Trust comes into it too…
Those same Blockchain ledgers that act as the locked vault of the currency have proved to be highly safe and reliable, like…well, just like a locked vault. Exactly like a Pound coin (or a Euro for the man in the Tabac and the lady in the Boulangerie with flour up to her elbows), it doesn’t require either party to a transaction to trust in the good faith of the other. It’s the coin itself, or the Bitcoin in this case, that makes the transaction work. Just like fiat currencies (issued by Governments), Blockchain gives Bitcoin an elaborate system of checks and verification systems to make sure the payment will actually go through. And because there are no intermediaries it costs less too, as well as being exceptionally difficult to counterfeit.
With that substructure of trust and certainty, and with all 21 Million Bitcoins in circulation, the price of one Bitcoin would be $514,000 (adopting traditional monetarist M3 (store of value) modelling), and that’s more than twenty times higher than its current market value of $27,000. Small wonder then that the market price is so resurgent at the moment…it has a lot of headroom to catch up on.
It’s not something that’s been lost on the world’s most vibrant distribution hub either. Sitting at the very heart of the planet’s trading networks, India is making the most of Blockchain technologies to turbo charge future economic development, not just across the subcontinent but in global markets too.
You can expect Bitcoin to be a key part of the process…
Economic commentators have concluded that the pandemic has brought ten years of technological innovation in six months, and looking at the exponential changes brought about by Zoom and Amazon, Bitcoin and Blockchain, I wouldn’t be at all surprised if that was right.