According to publicly-available market data, bitcoin’s market capitalization has hit a new all-time high, eclipsing its highest mark ever of $328.89879 billion, set on December 16, 2017, per Coin Metrics.
Market capitalization is determined by an asset’s individual price, multiplied by its total supply. At the time of this writing, according to cryptocurrency exchange Bitstamp, the bitcoin price reached $17,756 and, according to Bitcoin data aggregator Clark Moody, the supply has reached 18,546,019.15 BTC. With that total listed supply at that listed price, bitcoin has a market capitalization of $329.303116 billion.
Though the price of a single bitcoin measured in USD tends to garner the most mainstream media attention, the network’s market capitalization may be an even more critical measure of its value. It indicates the relative value of Bitcoin as a system, as opposed to the value of a single bitcoin.
Market capitalization is also a helpful measure for comparing Bitcoin to other financial assets, companies or value systems. As our infographic from August 2019 shows, even though Bitcoin’s market cap has grown considerably and represents by far the highest of any cryptocurrency, it still pales in comparison to many industries and legacy financial assets. When comparing market caps in this way, it’s clear that we have barely scratched the surface of Bitcoin’s financial potential
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One of Bitcoin’s key properties is the fact that it is free from control by any third party, including politicians. But the fact is that the price of Bitcoin relative to fiat can swing significantly as the result of political and legacy economic activity. For evidence, look no further than U.S. presidential elections.
Though major media outlets, including the Associated Press, have called the 2020 U.S. Presidential Election in favor of Joe Biden, lawsuits and contention from Donald Trump’s camp have meant that official results appear some distance away. In the meantime, according to Safetrading expectations, it is clear that the price of BTC will be affected.
“While the United States prepares for the results of the 2020 Presidential Election, a number of data points and traders expect some significant cryptocurrency price fluctuations,” per Bitcoin.com. “Statistics from skew.com show Bitcoin’s 30-day implied volatility has increased to 59% while 3-6 month stats jumped over 62%.”
To figure out more precisely what will happen to the BTC price, it may be worth considering how previous presidential elections have played out. In 2012, shortly after Bitcoin was first introduced and Barack Obama won a second presidential term, the price of Bitcoin remained around $10.90, according to CoinMarketCap. In 2016, when Donald Trump defied many mainstream expectations to win the presidency, the price of BTC rose quickly by 3.8 percent, possibly based on anxiety about how the mainstream economy would be affected.
But the fact is that Bitcoin’s price is notoriously volatile and difficult to predict. Since it is not pegged to any mainstream asset and offers only a few years of historical precedent, nobody can be exactly sure how the latest election will influence BTC.
Still, that level of uncertainty could be a reason for optimism in itself. “It’s worth reiterating that no matter who wins, there will be some level of calamity,” City A.M. reported. “A Trump win continues the pattern of unpredictability at home and abroad, leaving markets jittery and uncertain. A Biden win would result in the long-term calm but it is highly unlikely Trump will go quietly and chaos will reign into the new year. Expect volatility in traditional markets and opportunity in digital assets.”
Famous investor and hedge fund manager Ray Dalio recently tweeted out a thread listing the three biggest sticking points preventing him from jumping on the Bitcoin bull train.
Although mythsaboutBitcoinlikethese have been continuously debunked, clearly there’s more work to be done in dispelling misunderstandings like Dalio’s.
So let’s do that here — for Ray, and for our new wave of HODLers on the horizon.
“Bitcoin Is Not Very Good As A Medium Of Exchange”
Bitcoin both is and isn’t a good medium of exchange based on Dalio’s reasoning. Here’s where he’s right: Not every business in the world currently accepts bitcoin and holds it once they receive transactions from customers.
Here’s where he’s incorrect: There are so many tools that can process bitcoin payments and allow the user to transact with bitcoin, while the merchant doesn’t receive exposure to the risks of it (and may not even realize the purchaser used Bitcoin). A perfect example of a brand new tool that accomplishes this is Strike.
Strike uses technology called the Lightning Network that has only been live for about two years. Lightning Network is the best technology to allow scalable, smaller payments on the Bitcoin network. Before Lightning, it was expensive to transact with bitcoin, as each transaction required block space on-chain, and you had to pay a premium for that block space in the form of transaction fees.
Additionally, payment processors such as BitPay and OpenNode are onboarding more and more merchants who are willing to accept Bitcoin payments. Not to mention the fact that the man at the helm of one of the largest payment processors in the world, Square, is Jack Dorsey, and that it’s hard not to see the enabling of Bitcoin payments as something on their roadmap.
Of course, we’d be remiss if we didn’t also mention PayPal allowing users to purchase bitcoin on its platform recently as well.
Finally, a new currency takes time in order to become a medium of exchange. Bitcoin is only 11 years old. The longer it exists, the more money-like it will become.
The point is, while Dalio is correct that we don’t see a ton of direct purchases using Bitcoin yet (although there are some companies who accept direct payments), the infrastructure is being built, and the ease of use for payments is increasing rapidly. While you may be able to make this point today, it will become less and less valid as Bitcoin matures.
“It’s Not Very Good As A Store-Hold Of Wealth”
I’m the wrong person to be lecturing Dalio on store-of-value use cases, but isn’t an uncorrelated asset like bitcoin exactly what you’d want for a store of value?
If your store-of-value ebbs and flows with the value of everything else in the world, then it hasn’t stored any value at all. It has, at best, stopped you from losing value. Not to mention that, while it may have high volatility (although volatility is decreasing as time goes on), that volatility has historically resulted in price action that is up and to the right. Dollars have only gone down in value, and gold has only gone down in bitcoin-denominated value.
In fact, Bitcoin is the best performing asset in the history of the world. That would make it quite an excellent store of value.
“The Governments Will Outlaw It”
Here’s where I’ll concede another point to Dalio: Executive Order 6102 was real, and it was enacted so that the U.S. government would have more power over the USD. But that only happened because the USD was gold-backed, as he well knows.
Could the government come after Bitcoin and try to ban it? Yes, but that move would be unprecedented and dystopian. Bitcoin is freedom, code and free speech, and any government attempting to outlaw it would be directly attacking the First Amendment, as well as the entire ideal of freedom.
If a government ever attempted to outlaw Bitcoin, it would be the strongest signal in the world that said government has moved beyond its role and legitimacy, and is now only an institution seeking power and control.
If this is what is stopping you from owning Bitcoin, perhaps it reveals your own fears that our government is susceptible to overreach and illegitimate actions. Should your response be to enable that through inaction? Is this a good reason not to invest in bitcoin?
Finally, I’m just a measly Bitcoiner, and I’d be remiss to not highlight Nick Szabo’s response to Dalio as well, as his response is both elegant and pithy:
In sum, it is clear that Mr. Dalio is engaging sincerely with Bitcoin and what it offers the world. He’s asking the right questions. They are, however, questions that can be sufficiently answered, and they do not poke any holes in the value of what bitcoin offers. We will welcome Mr. Dalio as a new Bitcoin HODLer, whenever he chooses to get off zero.
This is a guest post by Brandon Green. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This episode of Bitcoin Magazine’s Fed Watch is a cosmic ride though the broad topics of money, central banks, and bitcoin.
My co-host Christian Keroles and I started by extending the analogy of a financial hurricane, which I spoke about in another recent podcast. Many people point to certain asset price rises as a sign of inflation, however, I argued that it is a natural evolution of prices due to the malfunctioning financial system. This malfunctioning financial system acts similarly to a physical natural disaster by distorting supply and demand for goods.
During a decade-long financial hurricane, changes occur not only to asset allocations of investors but the system itself can evolve, as well. It affects the pipes and infrastructure of the financial system, favoring relatively “safer” global assets like U.S. Treasuries and U.S. stocks. The economic behavior, products and relationships that form during a financial hurricane will favor hedging against deflation rather than risk-taking or behavior aimed at expansion.
Next, we turned to central banks and Central Bank Digital Currencies (CBDCs). We listened to comments by Fed Chairman Powell and ECB President Lagarde on CBDCs and cash from a recent ECB Forum. Of note in Powell’s remarks was his insistence on patience and his emphasis that CBDCs “must be done in a way where they do not affect [physical] cash or other private digital currencies.”
Keroles made a great observation about Powell’s position being analogous to the innovator’s dilemma. Lagarde follows Powell’s lead and reiterates a commitment to cash, but in a less convincing manner, and then gives a general timeline for a digital euro of two to four years. She sounded significantly more bullish on the idea of CBDCs than Powell did, but the offered timeline seems too slow.
By the time a digital euro is ready to launch, bitcoin will be a multi-trillion-dollar network and eating the world. The central banks will find themselves in the uncomfortable predicament that they inadvertently marketed bitcoin with all of their hype about CBDCs.
Lastly, Keroles and I get cosmic about the recent bitcoin rally, what we can expect from the bitcoin price in the short- to medium-term and about the long-term societal implications of bitcoin.
This is a guest post by Ansel Lindner. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.