The Big Bang
History was made in the summer of 2011 when Bitcoins price ballooned into; what at the time was, a staggering $32. What goes up, must come down, and inevitably, Bitcoins price took a nose dive back down to the $2.00 range. That ended up being a -94% bloodbath, but for the people who held onto their positions, they ended up reaping a massive reward. As we all know, Bitcoin has had an impressive past, with almost harmonic boom and bust cycles. Behind these cycles, underlying variables known as catalysts move the markets. Investors and traders alike speculate on reasons to buy or sell the digital asset, and in Bitcoins case, more buying and less selling. Regardless of your take on price, whether it's bullish or bearish, one thing is for certain; the market moves because of significant events that trigger speculation. With that being said, here are the top 3 long-term catalysts that will propel Bitcoin to new highs and revolutionize finance.
Yes, governments, and hear me out. I am not here to politicize anything because we can all agree, that gets annoying, but history has shown that governments, no matter the size, do not have the best track record when it comes to fiscal and monetary policies.
Look at the Roman empire, once the most powerful nation in the world had fallen due in part to hyperinflation. Around the year 211 AD, the silver Denarius was introduced and at the time, contained 95% silver. Close to 60 years later, the Denarius was only a mere 50% silver, and because of government greed, it was nixed completely not long after. This was because the coin ended up simply bronze dipped in silver and most silver lined the pockets of government officials. When it was all said and done, the prices inflated roughly 1000% and the purchasing power of the “silver” coin was next to nothing.
How did it contribute to the fall of an empire? the reason is simple; they could no longer afford their growing military. Since the value of their currency was falling and their need for security rising, the pay was eventually cut off. This is a classic example of government greed causing disequilibrium in the markets.
As I’m sure most of you know, bitcoin has a finite supply and distribution is decentralized. These two factors alone prevent a single entity from monopolizing the market. When a centralized distribution point is responsible for currency production, a much higher probability of hyperinflation and other economic disasters can occur.
Currently, there are a few countries experiencing hyperinflation. To name a few, Zimbabwe, Venezuela, and South Sudan are all seeing record inflation rates with Argentina posting in 2018, the highest rate in 27 years. With bitcoin gaining global traction, along with how easy it is to purchase, people that reside in countries facing currency devaluation, may start to hedge their savings against their government’s actions via Bitcoin.
2: Central Banks
Not only do governments devalue the currency, Central banks do too but through interest rates and other manipulative monetary policy. Two of the largest central banks are currently manipulating the market as we speak. The Federal Reserve (Fed) and the European Central Bank (ECB) are and have been using a set of controversial methods to “loosen” and “tighten” the economy. They accomplish this by what’s known as Quantitative Easing (QE) and Quantitative Tightening (QT.) Simply put, QE increases supply and demand, by lowering interest rates and making large scale asset purchases and QT does the opposite. Theoretically, this gives commercial banks capital to lend, and with the reduction of interest rates, encourages consumer and commercial credit.
Typically, QE and QT is supported by most keynesian economists because many believe consumer demand is what powers the economy. The support for consumer demand is what drives the use of such monetary policies, but unfortunately for us, trouble is unfolding behind the scenes; the global economy is on the track to a liquidity crisis.
Recently, the UN stated that they are in the midst of their very own cash crisis, with many member states unable to pay dues, which on its own is alarming. With the liquidity of global markets in danger, and interest rates sitting at record lows, performing QE in this market is simply a band-aid on a gun-shot wound, but luckily for us, Bitcoin will benefit when this pig bleeds out.
3: The Fourth Industrial Revolution
This one is big, and I'm honestly surprised few people have been focusing on the 4th industrial revolution (IR) in its entirety. For those who are unaware, we are in the early stages of the 4th IR, which consists of cyber-physical systems, internet of things, (IoT) artificial intelligence, and networking as a whole. Technology is evolving at an unthinkable pace that was once unheard of, and in the world of finance, traditional ledgers and other forms of monetary communication are slow, impractical, and inefficient.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, is the world’s largest monetary network, which is used by well over 200 countries, and on average, provides transportation for 31 million financial transactions daily. I’m sure you all knew where I was going with this, but blockchain technology will disrupt the system, but in a good way. Both SWIFT and Blockchain have one thing in common, they both provide the secure means of communication for financial transactions, but that’s one of the very few, and to be completely honest, it’s much easier to explain Blockchains superiority.
The SWIFT system is simply a secure means of communication, which utilizes either an 8 or 11 digit bank identifier code. Although powerful, the SWIFT system does not hold any assets, it does not manage funds, it can be expensive, and is relatively slow, but blockchain technology provides the means to fix these flaws and many more.
When transferring digital assets via blockchain, one can usually expect to pay a small fee, and depending on which used, rarely exceed a few dollars. When transferring funds the traditional way, institutions usually charge a small percentage as a fee. Now, hypothetically speaking, say you are wealthy and need to transfer, say 1 million dollars for whatever reason; a traditional transfer at 1% will cost $10,000, but using a blockchain, this same transfer could cost less than 50 cents and cut transaction time down to a mere fraction.
Technology is evolving at a record pace, and I am willing to bet the SWIFT system cannot keep up, or will end up lacking efficiency in comparison to a blockchain. The 4th IR will require an entirely new monetary system, one which can consolidate its features, automate transactions in a reliable, yet secure fashion, and one which can be integrated into almost anything you can think of.
Within the last decade, financial technology (FinTech) has exploded. Financial services that were previously reserved for wealthy clients of large investment banks or hedge funds, are now available to everyone. Within the bullish FinTech expansion, blockchain technology resides as the heart. Bitcoin, only 10 years old, has sparked something previously unheard of in the world of finance. The most talented developers from around the world, have been collectively contributing to the sector, and with many focusing specifically on blockchain, FinTech will consume our every-day lives during the 4th industrial revolution.
What will come of this?
So, you may find yourself asking what all three topics have in common, but instead, think of ways the three may correlate. Global tensions between nations are rising, both private, and government debt is at record highs, goods and services are too expensive for most, and wealth inequality is getting much worse. Everything and everyone is bearing the burden of failing financial infrastructure and once-dominant currencies are rapidly losing their purchasing power.
Not everything is pessimistic though, two things are for certain; people are tired and want change and technology is evolving at a pace once unheard of. Big banks are no longer calling the shots; a consensus is, and that worries them. Earlier this year, Rep. Brad Sherman of California, (D) said Facebook's Libra project “may do more to endanger America’ than 9/11,” but many view these comments as an expression of fear. Although, not every member of Congress sees this as a threat, many encourage free market innovation, for example Rep. Warren Davidson, (R) actually proposed Facebook to ditch Libra and adopt bitcoin instead.
The rapid expansion of technology, along with governments and central banks slowly losing the monetary grip they have on society, will ignite to fuse to a much-anticipated blockchain rocket. The almost forced institutionalization of crypto, on governments and banks alike, will benefit us, the people and hopefully pave the way for generations to come.