Many interpretations and many definitions. “The safest asset of all.” “One of the riskiest assets.” How is it possible to have both visions at the same time? What is Bitcoin actually?
The debate about the nature of Bitcoin is ongoing. What is Bitcoin? The “money of the future”? A speculative asset? An investment? A coin? The digital gold? The Bitcoin community is, in fact, more diverse than it seems. Not all Bitcoin definitions are exact. In many cases, More than definitions, these are very subjective aspirations. Many of these aspirations come from politics. So the confusion can become quite large. One must be very careful not to confuse financial analysis with political propaganda.
In its most basic sense, Bitcoin is a computer code created by Satoshi Nakamoto. This code was created after the financial crisis of 2008 imbued with a rather countercultural spirit. The code flourished in a very Californian environment, being related from the beginning to the cypherpunk culture. Lots of computers. Many libertarians. Many anarcho-capitalists. And many ultraconservatives. The idea of creating a citizen currency itself is not new. In fact, the idea of using a non-state form of payment is more reactionary than futuristic. The breakdown of the gold standard is something that many have been lamenting for decades, for example. Nevertheless, Bitcoin is a citizen (digital) currency born after the appearance of social networks.
- What does the “end of globalization” mean for the price of Bitcoin?
Social media has made it easier for like-minded people from around the world to come together.. So, we have a group that is using a citizen’s currency so as not to use the state’s currency. This is done as an act of libertarian emancipation against the system. Why not use gold? In fact, gold is the preferred asset of libertarians and the like. However, gold is not digital. It’s only natural that computer scientists (libertarians) have turned to digital in the digital age. After all, the virtual world is a new world. It is logical that it also has its own payment methods. In addition, electronic money has many advantages today.
Now, Bitcoin is fiat like fiat money of the States, it’s in limited supply like gold, and it’s digital like email. But it is not a state project. It is a private project. It is not corporate, but citizen. The code, of course, has no intrinsic value. It’s a code. It is a series of numbers and letters in a database. Nevertheless, there is a community that uses that code as a means of exchanging value. It is a social pact validated by its participants. That is, it has no intrinsic value. But it does have monetary value. In other words, the Bitcoin code represents an exchange rate.
Why use Bitcoin? Initially, the idea of using a non-state form of money is essentially an ideological act. Who creates our money? Who distributes our money? Who guards our money? In other words, adoption is a political act. On the one hand, it is a protest against state intervention in the economy. On the other hand, it is about building a fairer and more efficient alternative. Here “justice”, for groups of this current, means limited supply, free market, and no centralized intervention. In this context, “justice” is not necessarily peace, prosperity, equality, or regulation. You can have a free-for-all Wild West in a “survival of the fittest” culture. The most important thing is freedom. The highest good is decentralization. Otherwise, save yourself who can.
- Bitcoin Price: Is the Worst Over?
If the early adopters of Bitcoin were the idealists, the latter were convenience users. The convenience user is pragmatic. He is a user of technology. As this is an unregulated environment, the sky is the limit. Money can be moved at will. Bitcoin became popular in the gray economy, the gig economy, and other sectors. In countries with many restrictions on the flow of capital, the P2P market exploded.
Now, the third group is, without a doubt, the majority within the Bitcoin community at the moment. Is about investors and speculators. People who use Bitcoin as a collectible, expecting its price to rise over time. Idealists are the loudest on social media and in the press. They are in control of the most popular narratives among the most devoted. However, they do not have the numbers. The “mercenaries” are the silent majority. The Bitcoin market is mainly made up of miners, exchanges, investors, and traders. Profit is the main motivation. It is bought today hoping to sell later at a better price. Bitcoin is Wall Street on steroids.
It is still a market dominated by retailers. However, in recent years, institutions have begun to invest. From a financial point of view, Bitcoin is a fairly new market. It is a fragmented, relatively illiquid and unregulated market. That is, a highly volatile and immature market. In fact, its spectacular performance we owe, to a great extent, to that volatility and that immaturity. However, its popularity among millennials is incredible. We have a very rebellious generation, very technophilic, and very anti-system with a great desire to change everything. Bitcoin fits like a glove. The future demand is there. And the institutions know it. Undoubtedly, it is an emerging market with a lot of potential.
However, Bitcoin is not a “safe haven” due to the volatility of its price and the immaturity of its market. As simple as that. Bitcoin is a risky asset. At this stage of its evolution, Bitcoin basically behaves like a technology company. Bitcoin mainly attracts ambitious young people willing to take big risks in order to aggressively grow financially.. It is a speculative asset that thrives in environments with a lot of liquidity and a high tolerance for risk. Beyond the aspirations and the different narratives, the evidence speaks for itself.
The speech of Bitcoin as a “safe haven” comes from the idealists. Idealists believe that the world is on the verge of collapse due to state intervention in the economy. And they assume that all the “people” share the same interpretation of the facts. Consequently, we are all in search of a savior. Here is Bitcoin as the savior in a decadent world. Namely, it is about “security” in the context of “systemic risk”. That is different from “financial risk”. The financial risk is concentrated in the price. We return to politics and the world of ideologies. The libertarian dogma is based on a profound mistrust of the State. That translates into a deep mistrust of central banks and fiat money. Within this ideology, trusting the state is madness. It is best to take refuge in private solutions. Bitcoin will always be safer than state solutions. Trusting the State is trusting the enemy.
- How to invest wisely in times of volatility and uncertainty?
However, it is not always a good idea to manage our finances with an ideological bias. The investor must be objective. The idealist usually sees what he wants to see. Because his desire is to confirm his creed in everything he sees. However, the responsibility of the investor is not to defend a theory of the world, nor to promote the reform of it. Your first task is to take care of your pocket. Study the facts as they are to invest in the best possible way.
What do investors do in times of fear and uncertainty? Normally, investors, in periods of fear and uncertainty, become more conservative. This generally means they take refuge in the dollar, in (US) Treasury bonds, in gold and in the more established defensive companies in search of stability. They do this while avoiding the more speculative sectors of the economy like the growth/tech sector to escape volatility. Ironically, it is not uncommon for investors in difficult times to seek refuge in Papa State. Whether we like it or not.
Ideological movements usually start by changing the language. Words like “money”, “risk”, and “security” are redefined to promote different narratives. In fact, words are abused. Which is quite confusing due to the ambiguity of the terms. It is best to use financial terminology for financial matters. And manage our finances with financial criteria. When it comes to investing in Bitcoin and cryptocurrencies, this clarity is essential.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
- What does the “end of globalization” mean for the price of Bitcoin?
- Bitcoin Price: Is the Worst Over?
- How to invest wisely in times of volatility and uncertainty?