Bitcoin (BTC +1.02%), the world's largest cryptocurrency, has always been a controversial asset. It was essentially created out of thin air and has been quite volatile for over a decade. Some have accused the network of being a haven for criminals to launder money, while one of the world's best investors, Warren Buffett, has famously called it "probably rat poison squared."
But now, advocates like Michael Saylor are having a moment with Bitcoin recently surpassing the $100,000 level. Can things get any better for the Bitcoin bulls? Yes, apparently. The world's largest cryptocurrency just got a ringing endorsement from Federal Reserve Chair Jerome Powell.
Digital gold
Many, including myself, would argue that if there's one cryptocurrency to buy, it's Bitcoin. However, when you think about Bitcoin's network and utility, there's much to be desired. The network is clunky and can take minutes, or in some cases, hours to process transactions. Other crypto networks can process many transactions in seconds. It's also not a place developers look to build decentralized applications because of the network's limited smart-contract functionality.
So what does Bitcoin have going for it? For one, it's considered the pioneer of the crypto sector and will always have a brand premium among cryptocurrencies. However, the big quality that makes Bitcoin appealing is a growing consensus that it can hedge inflation. Bitcoin has a finite supply of 21 million tokens and is a scarce asset. The number of tokens mined per block is cut in half every 210,000 blocks, or roughly once every four years.
There is still debate over Bitcoin's ability to hedge inflation. However, the token performed well in the latest rising-interest-rate and high inflationary environment, holding up better than expected and rebounding time and again. Recently, at The New York Times' DealBook Summit, Powell gave the token a ringing endorsement:
People use bitcoin as a speculative asset... It's just like gold, only it's virtual, it's digital. People are not using it as a form of payment or as a store of value. It's highly volatile. It's not a competitor for the dollar, it's really a competitor for gold.
Some believe Bitcoin could one day challenge the dollar. After all, Bitcoin was born during the depths of the Great Recession in 2008 as an alternative to the mainstream financial system. As the person in charge of the agency overseeing the U.S. money supply, Powell likely tried to talk down this narrative.
However, investors seemed to ignore those comments and ran with his comparison to gold. Some believe it may have been the spark that pushed Bitcoin past $100,000. LMAX Group Market Strategist Joel Kruger cited Powell's comments as "another level of credibility to bitcoin as a major asset in global markets." Kruger also noted that gold's market cap is roughly 10 times the size of Bitcoin's, suggesting the token has a long runway.
Perception is reality
Whether you believe that Bitcoin is a form of digital gold or not, it's hard to deny that a growing perception of this notion is quickly becoming a reality. Blackrock, the largest asset manager in the world, authored a white paper in September, noting that the characteristics of Bitcoin have made some investors view it as a "flight to safety" amid geopolitical events and times of fear. BlackRock CEO Larry Fink has been a huge advocate of the token.
I can't think of a more ringing endorsement than Powell calling Bitcoin a competitor of gold, especially since he doesn't own the token (not that he is likely permitted to, given his position).
I also agree with others who think the U.S.'s growing fiscal and budgetary woes will become an issue if corrective actions aren't soon taken. Lack of action could potentially lead to an inflationary environment. I would expect younger generations that grew up with the internet to be more familiar with and buy Bitcoin over gold, because gold is likely more foreign to them as an asset to own and Bitcoin keeps getting endorsed as an inflation hedge. This is why I believe Bitcoin is a good long-term asset to have some exposure to.
