For more than a decade, crypto enthusiasts have been banging the drum for Bitcoin (BTC +1.47%), calling it the future of money. They have argued that Bitcoin is more reliable as a store of value than fiat money, and they have preferred to hold Bitcoin over dollar-denominated assets. And now, it looks like Wall Street is starting to come around to this same way of thinking.
According to Morgan Stanley (MS 0.29%), the recent approval of the new spot Bitcoin ETFs marks a potential paradigm shift in the way we think about not only cryptocurrency but also the entire global financial system. If that's the case, it could be time to buy Bitcoin before it skyrockets in value.
Morgan Stanley's de-dollarization thesis
There's a lot to unpack here, but one of the primary focal points of the Morgan Stanley report is the de-dollarization thesis. Broadly speaking, it argues that the U.S. dollar plays a disproportionate role in today's global economy and that there's room for new digital assets such as Bitcoin to play a much bigger part. For example, says Morgan Stanley, the U.S. now accounts for only 25% of global gross domestic product (GDP), yet 60% of all foreign exchange reserves held worldwide are in dollars.
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Before the rise of China, it made sense for the U.S. dollar to play a dominant role simply because the U.S. economy was so big and nearly unchallenged on the global stage. But now, a number of economies around the world, from Latin America to Asia-Pacific, are vying for leadership. Add in that a number of powerful nations are now being excluded from the world's financial system due to economic sanctions, and it's clear why the search is on for a potential alternative to the U.S. dollar.
Bitcoin versus the dollar
In one scenario, Bitcoin could become the digital asset alternative to the U.S. dollar. Morgan Stanley points to a number of inherent characteristics of Bitcoin -- such as a total circulating supply that's capped at 21 million coins and a decentralized blockchain network that's beyond the reach of central banks -- that make it potentially more attractive than the U.S. dollar. That's what the original Bitcoin backers argued, and now, it looks like this so-called "internet forum idea" is going mainstream.
CRYPTO: BTC
Key Data Points
While we're obviously very early in the story of Bitcoin replacing the U.S. dollar anytime soon, there are certainly signs emerging in various parts of the world that this could happen sooner than many people ever anticipated. For example, El Salvador -- which adopted Bitcoin as legal tender back in 2021 -- is a potential model for other nations.
While Morgan Stanley did not include any type of future price prediction for Bitcoin in the report, it's easy to see why the greater global adoption of Bitcoin would cause its price to soar. It's Economics 101. Bitcoin has a limited supply, and if global adoption leads to a higher demand, the price is likely to rise.
What happens next with Bitcoin?
Morgan Staley suggests the long-term trend is the search for a new form of money for an increasingly digital economy. At some point, it will likely include some mix of stablecoins, central bank digital currencies (CBDCs), cryptocurrencies, and traditional fiat money. Given all the recent hoopla around the new spot Bitcoin ETFs, it's easy to see why many people think Bitcoin now has the inside track to play a much more important role.
However, just keep in mind -- even within Morgan Stanley itself, there appears to be a difference in opinion about Bitcoin. Just two weeks before the de-dollarization report was released, the executive chairman of Morgan Stanley, James Gorman, appeared on Bloomberg TV, saying he has never understood the allure of Bitcoin as a form of stored value. According to him, Bitcoin remains a highly speculative asset, one that should comprise only a tiny portion of one's portfolio.
So, a big caveat here -- there's no guarantee that Bitcoin will soar in value or that it will play an increasingly important role in the world's financial system. It's best to think in terms of a range of possible outcomes for Bitcoin.
That's why it's best to adopt a long-term buy-and-hold strategy for Bitcoin. If Morgan Stanley is right, and the new spot Bitcoin ETFs really do represent a paradigm shift, Bitcoin might be one way to participate in the potential upside of digital assets.
