Due to the unrestrained monetary policy of a variety of financial regulators and rising global inflation, the leading analytical agencies are once again comparing Bitcoin to gold. Unlike fiat, gold and Bitcoin both have limited reserves.
For the past two years, the US dollar money supply (M2 monetary aggregate) increased by 38%, while the Fed's balance sheet has swollen by more than 200% through various Treasury and commercial bond purchases. Simply put, the regulator was printing additional money in order to cover state expenditures.
It's unsurprising that US inflation is currently at a 40-year high, having reached 7.5% in January. For virtually the entirety of last year, Fed chair Jerome Powell had been calling rising prices "transitory", covering his eyes to the causal link between central bank policy and inflation. That's what prompted famous gold bug Peter Schiff to post the following Tweet: "Because the has no ability to fight #inflation without crashing the markets and the economy it pretended that inflation was transitory to justify its failure to start a fight. Now that it stopped pretending inflation is transitory [it's] now pretending [it's] prepared to fight it!"
Schiff suggests that the only refuge from price rises is gold, while JPMorgan has noted increased institutional demand for Bitcoin as a hedge against inflation. The amount of gold on the planet is limited, and mining it becomes more and more labour-intensive with each passing year. The same is true of Bitcoin: the rising number of miners means that calculation difficulty is constantly increasing, while total reserves are limited to 21 million coins. Beyond these factors, cryptocurrency has an in-built deflationary mechanism known as halving: every four years, the mining reward for each block is reduced by 50%. This is in stark contrast with national currencies, which can be printed ad infinitum to fill budget holes.
JPMorgan's long-term Bitcoin price target is $150,000. The cryptocurrency will only reach this level when its market capitalisation ($818 billion) is equal to that of gold ($11.6 trillion). According to analysts, high volatility is Bitcoin's biggest flaw and the primary factor delaying this process.
Bank of America shares more or less the same opinion with regard to the shift in investor interest from gold towards Bitcoin, noting reduced volatility in the cryptocurrency over time.
Rising capitalisation and falling volatility are interconnected processes. As the market matures and the number of participants grows, both decentralisation (stability) and capitalisation will increase. At the same time, a legal framework is beginning to take hold in the crypto industry. All of this provides inertia that will make Bitcoin less volatile.
StormGain analytical group
(cryptocurrency trading, exchange and storage platform)
