For much of its existence, Bitcoin has been treated by many as not much more than a highly volatile asset that can be used to make speculative trades. This means that it is something that is useful for people looking to make short-term gains. But as the cryptocurrency continues to mature, and is introduced to ETFs and more traditional financial markets, Bitcoin is showing signs of becoming more than an asset that is only traded speculatively.
While Bitcoin and other cryptocurrencies tout their uses and ability to provide services, value and ability to those that hold them, many of them have been treated as nothing more than assets to be traded speculatively, especially by traders and institutions in more traditional financial markets. Bitcoin is often seen as highly volatile, holding no value for traders interested in long-term stability, only useful for short-term p2p Bitcoin trades, an asset to be flipped for quick gains. But the future of Bitcoin continues to hint at the ability to be something more.
Some analysts see Bitcoin becoming a value store, the foundational component of a new global system of finance or a consistently used currency. Some recent developments, particularly the introduction of Bitcoin to exchange-traded funds (ETFs) and the adoption of Bitcoin tokens by a growing number of institutionalized investors, are seen by some analysts as signs that Bitcoin is quickly approaching a point of transcending its status as a speculative asset.
Let’s take a closer look at how some analysts think the way that Bitcoin is perceived is changing, from its perception as being a tech-risk factor, to its potential as a value store and its increasing adoption by institutional investors through ETFs.
Investors Treating Bitcoin as a Tech-Risk Factor
The most recent significant change that has occurred in the way that Bitcoin is perceived is the increasing use as a tech-risk factor by investors. Often, Bitcoin has been considered a useful hedge investment against inflation or currency devaluation, or even against global political turmoil. As we will cover later, it has at times been described as digital gold, thanks to its scarcity. But with traditional institutionalized investors gaining access to the cryptocurrency through ETFs, the way they are using it is changing how it is perceived.
Over the last month or two, institutionalized investors have been seen to align the price movements of Bitcoin with the US tech giants like Google, treating the cryptocurrency as a high-risk technology factor.
While it isn’t always the case, if there is market stress placed on the tech sector, such as recently, when AI was being particularly disruptive across the market, a pattern has emerged of Bitcoin moving at the same rate as more traditional software equities.
In a nutshell, this means that those traditional investors who are accessing Bitcoin through ETFs see it as being connected to the larger technology market ecosystem and are treating it in much the same way as they do other assets of that type.
When these institutionalized investors see software equities declining in value, they might also liquidate Bitcoin positions, as well as any other high-risk tech assets that they hold. This also means that the inverse is true: when software stabilizes and looks ready to grow, those same investors are likely to re-acquire Bitcoin, as well as other technology equities that they consider to be risky.
Some analysts have predicted that this perception and attitude towards Bitcoin could lead to the monetary narrative that has often been touted by Bitcoin supporters, that it has a place as a decentralized and scarce asset, rather than simply an asset to be traded speculatively, being more widely adopted.
Digital Gold, Scarce and Decentralized
Some analysts have continued to toe the line that Bitcoin has a place as a value store, calling it digital gold. There are some strong arguments for this case; Bitcoin works on a fixed supply model, meaning that it will never surpass 21 million coins, which represents a level of scarcity that is somewhat akin to that we experience with precious metals like gold. This scarcity is a key part of why many investors view Bitcoin as a potential hedge against currency devaluation and inflation.
The digital part of the moniker ‘digital gold’ might be the most advantageous thing about it, however. Gold is heavy, hard to transport and not necessarily easy to split up. Bitcoin is better in all of these respects. It’s decentralized nature means that it can cross borders with great ease, it is extremely portable and easy to divide up. Considering the increasingly digitalized nature of the global economy, Bitcoin’s use as a store of value is in no way jeopardized.
In regions that are experiencing inflation, Bitcoin has already been demonstrated as an excellent store of value and financial lifeline, providing those smart enough to invest in it with continued access to the global market and the preservation of their wealth.
How ETFs Have Helped Drive Mainstream Adoption of Bitcoin
One of the biggest stories in Bitcoin’s recent growth has to be the introduction of Bitcoin tokens to ETFs. These ETFs provide access for more traditional institutionalized investors to the cryptocurrency, allowing them to expose their portfolios to the cryptocurrency without actually engaging with the blockchain or the technology that underlies Bitcoin at all.
This has been a big sea-change moment for many traditional investment groups, and has massively increased the investor base of Bitcoin. The initial influx of institutional investors has seen the liquidity of Bitcoin increase, and has also legitimized the cryptocurrency in the eyes of many. It has also helped to align the movements of Bitcoin with those of many other, more traditional equities. The more that institutionalized investors treat Bitcoin in the same way as other assets, the more it will behave in ways that mimic broader sentiments across the market, as we discussed above.
The move into ETFs has been a big step towards moving Bitcoin away from being a purely speculative asset and into something more akin to a mainstream financial tool.
Final Thoughts
While Bitcoin might have started its existence as an experiment and has spent a significant amount of time being viewed as nothing more than a high-risk speculative asset, it continues to show signs that it can become more than that.
It seems that, for the most part, the way that investors, particularly the more traditional institutionalized investors, treat Bitcoin will have a significant effect on the way that it is perceived and on what it can become.