adopting bitcoin Archives

Good Liquidity:

resizedimage698239-bitcoin-as-an-asset-class-daily-liquidity

For any asset class, ample liquidity is an important factor to make profitable investments. Without good liquidity it would be difficult to understand and study market dynamics. After seven years of very organic development Bitcoin ecosystem has consistently gained good volumes. Currently the volumes have started surpassing $1 billion in a day on an average. At this rate, it is almost as liquid as Gold is and far more liquid than heavily invested assets. It is also very secure owing to the infrastructure built around the peer to peer network of the currency. Hence Bitcoin offers good liquidity to investors for heavy investments.

Qualities of the asset:

Qualities of the asset refer to how the asset holds value and how it might change with time. This in totality refers to all the qualities that are related to the asset that might govern its value. In this respect, Bitcoin follows Gold and other precious metals. The major correlation is the fact that the supply is limited. With Bitcoin, we have a definite time frame in mind and it doesn’t have the uncertainty factor like in the case of Gold. This makes it even more valuable and the prices are sure to tend higher. Apart from this, adoption and ease of transfer make it a better store of value than Gold. Hence given the above mentioned factors this makes it a very viable asset class to invest.

Correlation with other asset classes:

To transform into a mainstream asset class that is suitable for investments, Bitcoin’s correlation has to be low w.r.t other asset classes. This would then enable it to be a worthy portfolio diversification component. It is this quality that keeps a diversified portfolio safe from losses.

Credits: Grayscale.co

Bitcoin has little or no correlation with any of the existing asset classes. The maximum correlation, that bitcoin exhibited with each of the other assets is the minimum correlation that any of the other paired assets displayed with each other. This means it would be one of the safest asset classes to invest in as the fundamentals governing this market are totally different.

Right from its inception, Bitcoin’s development has been quick and promising. The world was quick to recognize its disruptive nature and Bitcoin’s adoption became fluid. While the status of Bitcoin as an adaptable universal currency still remains ambiguous, it surely has proven its utility. For economies that have been struggling, people have sought to Bitcoin as an alternate in more occasions than one. Let’s look into the situations where Bitcoin actually did better than just saving face in times of crisis:

Fears of Greece exiting Eurozone or Grexit:

In 2015, Greece was in severe recession and in a debt of nearly 1.5 billion euros to creditors. Defaulting on timely payment of the credit might have resulted in Greece leaving the Eurozone. The fears looming the Grexit prompted people to look for alternative methods to pay for Goods and Services. With the local currency inflating at phenomenal rate, there was a clear uptick in the Bitcoin trading. This was a direct result of people investing in Bitcoin so as to hold value against their currency.

20151128_btc1 — Grexit Pushing prices higher and recently Argentinian policies increasing the volumes of trading

As an alternate to monetary reforms enforced, most cryptocurrency supporters argued that Greece could have opted a digital asset model. That is Government could have used decentralized currency to pay pensioners and Government servants initially. Government assets would back this currency and hence can be repaid later. Though Greece took a different path, it is evident from trading volumes that people took to Bitcoin in the time of crisis.

Argentina and Financial repression:

Argentina has experienced the crippling effects of 2008 housing collapse and continued to feel the jitters even in the next decade. Amid the downward spiral of economic decline, the government announced stringent financial restrictions in 2011. This restricts people from buying foreign currency and to send money overseas. This financial repression made some Argentineans to adopt the cryptocurrency as an escape route from government controls.

A pleasant Government change has lead to revoking of reforms, accommodating better policies to save the country. While the economy is recovering, there is an increase in volume and number of companies operating with Bitcoin. While Bitcoin has supported people during the repressive phase, let’s see how it would help Argentina to reconstruct its economy.

Brazil and Kenya:

Rising volumes in Brazilian Bitcoin Trading

Brazil is the world’s largest exporter of soft commodities and it has been in recession for over three years. With its economy weakening, the exporters aren’t getting good value for their exports. Hence they have resorted to payments in bitcoin so as to maintain their value of profits. This resulted in the increased volumes during the harvest period of the soft commodities crop cycle.

Kenya has a high population of unbanked citizens and high micropayment transactions in mobile systems. While Government is tightening its hold on local businesses through tax monitoring, Bitcoin is instrumental in building a regulated system. Major wallets like Bitpesa are actually helping the Government to setup a regulated system. This would allow the businesses to flourish and also be monitored for tax irregularities, if any.

Hence we can see that Bitcoin indeed has been crucial in strengthening or restructuring weak economies in many cases.

Tag: adopting bitcoin

Why you should invest in Bitcoin?