Key facts:
Gary Gensler, chairman of the SEC, defined bitcoin as a commodity on Tuesday.
A commodity is a basic mass-produced good intended for commercial use.
In its 13-year history, bitcoin is a financial asset that has been cataloged by its users in different ways. Among the main qualifications that have been given to the first cryptocurrency, its use as a currency and means of payment, the treatment by investors as a risk asset and the characterization of bitcoin as a commodities or commodity.
About bitcoin (BTC) as a currency, this conception is implicit since the creation of this digital assetas the backbone of “a user-to-user electronic cash system,” as it is called in the Bitcoin white paper, published on October 31, 2008.
In a recent report by Block Inc., a company led by the former CEO of Twitter, Jack Dorsey, commented by this medium, 40% of those surveyed believed that they acquired bitcoin to buy goods and services. On the other hand, 37% thought that bitcoin was appropriate for sending money to others in the form of remittances.
But perhaps the most important initiative of the use of bitcoin as a currency occurred in El Salvador in September 2021, with the decision of the government of that country to grant bitcoin the status of legal tender, fact reported in CriptoNoticias. This began an unprecedented adoption process that included the delivery of points of sale to merchants, the installation of an ATM network and the mass distribution of the bitcoin wallet to citizens. Goat Wallet.
The Salvadoran experience was the main motivation for the Central African Republic to become the second country in the world to adopt bitcoin. This decision offers greater flexibility to the government of that African country in its commercial relations, which are currently largely controlled by France, as reported by CriptoNoticias.
In addition to its use as a currency, BTC is also seen as a means of investment, which leads to purchase operations on exchanges if the investor expects its price to increase. Also, investors and speculators may be motivated to sell if they expect a price pullback.
Bitcoin as a risk asset
The term “risky asset” refers to assets that have a significant degree of volatility in their prices, such as stocks or commodities. Precisely because of its volatility, bitcoin has been included in this category.
On the status of bitcoin as a risk asset, there is a relationship with the prevailing sentiment in the market, which may be more risk-prone, or risk.on; or less prone to risk, which is called risk-off. At present, it is considered that the latter predominates, which means that investors feel less willing to take risks.
In the current bear market phase, investors who take short positions consider bitcoin a risky asset. Hence its high correlation with indices and conventional stocks.
According to a report by Bloomberg, published last May, bitcoin and cryptocurrencies had been separated from risk assets. The fact that, last May, bitcoin showed only a 15% drop in relation to a 20% decline on Nasdaq, marked the transition of bitcoin to an asset. risk-off, Bloomberg noted.
This is the same position of the trader and analyst Eduardo Gavotti, who in an interview with CriptoNoticias assured that bitcoin could drop more in price because “there has not yet been a change in the environment that returns the appetite for risk to investors and speculators.” A reality that has been fulfilled, with BTC currently trading in the order of 20,000 dollars per unit.
Gavotti points out that, in times of uncertainty about the economy such as those in 2022, investors tend to move away from risky assets. Such a position is consistent with the bearish sentiment on the evolution of the market, which currently predominates in the Bitcoin community.
bitcoin like commodities
A third position on the nature of bitcoin argues that the first cryptocurrency would be a commoditiesthat is, a basic product. Since September 2015, part of the financial regulators in the US has raised that position. The United States Commodity Futures Trading Commission (CFTC) officially declared that bitcoin and other cryptocurrencies fell into the category of commodities and, therefore, their trading must be regulated by the agency.
A commoditiesalso called commodity or commodity, is all mass-produced goods intended for commercial use, or of which there are enormous quantities available in nature, with a low level of differentiation or specialization. Gold, silver, oil, agricultural products and livestock, among others, fall into this category.
This week, the president of the United States Securities and Exchange Commission (SEC), Gary Gensler, ratified the condition of commodities of bitcoin, which had also been endorsed by his predecessor at the SEC, Jay Clayton, in November 2020.
As can be seen from the executive order signed by President Joe Biden in early March, commented on by CriptoNoticias, the CFTC, the SEC and other government agencies must coordinate their efforts and manage a common approach around bitcoin and cryptocurrencies. It is expected that a coordinated position of the US authorities on bitcoin will necessarily imply a single categorization of bitcoin.
Beyond the opinion of regulators, the narrative of bitcoin as a commodity has gained strength from the scarcity that is contemplated in the bitcoin protocol. This feature of decreasing issuance makes it more attractive in the eyes of investors.
This perspective has gained strength since 2020 when bitcoin was characterized as “digital gold”, a category that could be an incentive in bull markets, as happened last year in the midst of a pandemic.
At the end of the day, seeing Bitcoin as a commodity, investors following this trend believe that the asset can appreciate in the long term and become a reliable store of value. A reputation that could help the cryptocurrency rise in value over the years.