Put your tinfoil hats on and get your decoder rings, It’s time to talk about the future. I want to tell you why I think BTC is the newest reserve currency. I’m not the only one who thinks so. It’s why holding some actual BTC could be the smartest thing you’ll ever do.
Meet BTC, a Shady Lady Looking to Go Good.
Last week I pitched bitcoin as more than a cryptocurrency. It’s also going to be a very good medium of exchange for large sums of wealth as an intrinsic tool. To put it even more simply, as an actual currency, I bet we’ll see the actual rate continue to climb, making the trading value look like a candle next to the sun.
I’m talking the long game. Years, not months. If the elder gods (e.g. ultra-rich, shady states etc.) get over their fear of BTC and embrace it, it’ll make USD look like CAD. In last week’s piece I go into some detail about why I think BTC will go that way, – but there’s an even bigger factor I hadn’t considered which hit me like a ton of bricks.
Bitcoin is the crypto reserve currency.
Reserve Currency and You
If you’re a stranger to the world of currency markets and economics, I’ll do a quick flyby. A reserve currency is what everyone agrees on will be used as the standard in trade. The one you’re most familiar is the U.S. Dollar. It’s the international standard of trade, and pretty much everything else in the real world is pegged to its value.
Every government, and major economic actor holds reserves of U.S. currency to back up their economy, and facilitate foreign purchases. So if you don’t have faith in the Latverian Doombuck, it doesn’t matter, because the government pays with U.S. currency from it’s reserves.
This concept is applied everywhere – even micro economies. I see people using certain loyalty programs to swap and trade points, and they are all calculated in Aeroplan miles because back in the day it was easier to move points in and out of the program, and it became a reserve currency.
To sum up – a reserve currency is the medium of exchange everyone agrees to accept, and holds to ensure they have a backup if their other assets won’t be accepted.
Bitcoin Reserves the Right to Buy your Stuff
In the real world, BTC is the farthest thing in the world right now from a reserve currency. You generally can’t buy a loaf of bread at the corner store with BTC. (Yes, San Francisco, Seattle and Vancouver, I see you waving your hands trying to get my attention. sit down.) It’s penetration into the ‘real’ economy is low.
In the cryptocurrency world, BTC is the grey lady, the rock – the progenitor, hallowed be thy blockchain. When anyone explains blockchain or cryptocurrency, they use bitcoin. Bitcoin is what your parents and grandparents ask about at holiday dinner, before suggesting you invest in gold. (and then they roll their eyes when you mention battery metals)
What’s even more striking, is as the fact that as the crypto and blockchain market explodes, all new crypto currency transactions are made in bitcoin.
If you want to buy Ethereum, Litecoin, generally you pay cash for BTC and pay the BTC for the new stuff. You can buy BTC in USD, CAD, GBP, even Latverian Doombucks. It all funnels into bitcoin, and flows to the other currencies.
BTC is currently the de-facto reserve currency for crypto, and the market hasn’t realized it yet!
This brief window of ignorance is about to close. With BTC futures launching this week, bitcoin is going to look more and more like a classic currency to even the dumbest market modellers. It will NOT take them long to put two and two together and get 102.
If and when this ideas is accepted as financial reality by everyone, all bets on BTC are off. If investors continue to put money into the cryptocurrency market (the currencies themselves – not just mining companies) there’s no telling where the actual exchange rate for BTC could go.
Forget bubble town. The rush to hold BTC will intensify. Major players will want to hold reserves of BTC to hedge against inflation and preserve liquidity in the crypto market.
The smartier of the smarty-pants set may wait for a round of panicky profit taking as the jittery few bail early. This could be a completely new economic frontier. Imagine holding shares in the U.S. treasury in 1795 – what would they be worth in 1815? 1900? 1955?!
You could be looking at the same opportunity here. Bitcoin is fully fungible, secure and can act as an automated store of value without political meddling. (Disclaimer: people can screw up anything good.) If cryptocurrency economics continue to grow in the future, holding BTC is like holding a piece of a state’s central bank.
I want to go to there please. If you hold BTC, and plan to go long, this is what you want too.
Tying it Together
Finance, economics and money are all based on our shared agreements. Markets work because we all have faith somewhere there is value backing our transactions.
With Crypto, it’s a whole new frontier. The technology provides actual utility and value beyond it’s trading or speculative price. As a market and economy for the new digital world, it could transform tax policy, international trade, security and other business and diplomatic spheres.
The universal unit of this new economy, the atom if you will, is the Bitcoin. How much is having that much power over the new economy worth? Especially as the supply of BTC slows to a trickle and stops.
One dollar? 10,000 dollars? 1,000,000 dollars?
The GDP of Singapore is roughly the same as the cryptocurrency market, about $300 billion (According to Coindesk). It’s currency is trading @ 75 cents USD.
Singapore has a central bank, politicians, economic and regional issues all factoring into it’s price. It’s also not the reserve currency. The government can run unlimited Singapore Dollars tomorrow, flooding the market. (So can any other state actor.)
That can’t happen with BTC. There are 21 million Bitcoins. Technically that would make the current exchange rate (with an estimated market value of $300 billion USD) about $14.2k. Obviously that’s insane.
The market is flailing around because crypto is the ‘future’ but everyone’s treating it like a toy. It’s not a toy. It’s a game changer and everyone’s admiring the trees and missing the forest.
As the market matures, every single one of those 21 million BTC will become fundamental shares in the central bank of the digital economy. Buying and holding a couple of BTC, even at today’s prices has the potential to deliver staggering profits as BTC becomes more and more reserved for massive currency swaps.
If you have some BTC, put a bit aside and hold it. Your kids and grandkids will thank you.
I’m starting to think $1m/BTC may be conservative.
Full Disclosure: I’m speculating. I don’t think I’m wrong, but I am speculating.