Bitcoin's Domino Affect
- Ricardo Toledo
- Apr 4, 2021
- 2 min read
In this bull cycle, we have seen the crypto market skyrocket. its common place to see many currencies 10x in value. Bitcoin went from a low of around $5k per coin in march of 2020 to $58k as of todays date. What is interesting about the past several months was the perfect storm that triggered much of explosive growth we have seen, things such as the Covid19 Pandemic, government stimulus, and Bitcoins halving event. Some of these triggers came at different times throughout this cycle. What trigger caused what effect is a topic for another post.
Perhaps what the most important event, that will have the longest lasting impact, is the institutional interest that has been publicized in recent weeks. Tesla announced their acquisition of Bitcoin on February 8th, 2021 a little over a month later on March 24th, they announced they would allow customers to buy Tesla’s with Bitcoin. Most importantly they are not going to liquidate their Bitcoin into fiat but add it to their Bitcoin treasury. It is one thing to accept payments in crypto currency, but it is an entirely different thing to keep it and add it to a treasury.
Tesla is the most public example of this; however, they are not the only company to have turned their attention towards Bitcoin. Morgan Stanley and Goldman Sachs have recently announced plans of rolling out services that give their customers exposure to crypto currencies. As of now It's unclear whether they will be offering it directly for customers to purchase the digital asset or in the form of a derivative of stock/fund. Needless to say this bull market has sparked a trend amongst large banks and companies with billions of dollars in reserves to buy Bitcoin.
Institutional Domino Theory is an idea very similar to that of the 50s-80s where if a country adopted communism in a region, neighboring countries would follow suit. Just apply that to Bitcoin and institutional adopters.
The dollar has lost much of its purchasing power in the past hundred years or so. $100 in 1913 is equivalent to $2,634 in 2020. This does not account for the stimulus of 2021.
Kimberly Amadeo August 21, 2020. Inflation of the dollar from 1913 to 2020. Accessed April 4th 2021. (https://www.thebalance.com/what-is-the-value-of-a-dollar-today-3306105)
Due to the diminishing value of the dollar, if there is a more competitive store of value, institutions will not have a choice but to adopt that asset, as those that don’t, would consequently be losing purchasing power and make themselves less competitive. We are likely just at the beginning of a wave of a much larger trend, where companies, governments and people move away from the dollar and into digital assets like Bitcoin. Thus, the dominos will fall one by one.
We have likely not seen the full affects of inflation around the time of writing this. I’m not entirely sure what could happen as a consequence of printing trillions of dollars, but if I had to make a bet on it, I’d would say that the affect will be negative one if history is anything to go by.
References
https://www.thebalance.com/what-is-the-value-of-a-dollar-today-3306105
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