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Insights

Bitcoin the future of money

Published 20 Nov 2020

We believe that we’re seeing the emergence of a new parallel global financial system being built from the ground up, underpinned by market-based money. ‘Bitcoin’ represents a technological breakthrough and paradigm shift in monetary policy. Is Bitcoin the future of money?

Holon is looking to solve institutional, high net-worth and retail investor access to Bitcoin in a secure way across the globe.

Why Bitcoin?

Fiat currencies have lost more than 95% of their purchasing power in comparison to hard money (gold) since the 1930s.  The incentive for governments to ‘print’ money in times of crisis is too strong and the increase of money into the global economy eventually forces hard assets to reprice to a devalued fiat currency. 

M2 Money Supply, Gold & Bitcoin from 1970's to 2020

As a store-of-value not tied to a central authority, investors have traditionally turned to gold to protect their purchasing power. 

Bitcoin takes the properties of gold that have elevated it to the monetary standard for millennia and improves on it in a digital format. By 2024, we believe that Bitcoin will be the ‘hardest’ form of money on earth, eclipsing the most important property for gold’s monetary premium.

Bitcoin provides a potential pathway for society to move away from the risks in fiat based money without compromising on the digital nature of today’s financial system.

The rarity and importance of a new form of money cannot be understated. At today’s value, Bitcoin represents just 1.5% of Gold’s market cap, for which it is a superior substitute. Yet, the opportunity for Bitcoin is far greater than just a substitute for gold. 

A market based, deflationary system for money, where our key store of value or cash does not devalue, is completely at odds with the current financial system. The global financial system would need to be reimagined, making for a 100 trillion dollar opportunity set.

The ramifications for investors heavily exposed to the current financial system in a transition to a Bitcoin backed world would be significant. Financial services would diminish as the need for institutions employed to outpace inflation would no longer exist.

Our view is that Bitcoin should be part of investors portfolio’s today. This is because there is a small but growing probability of Bitcoin becoming the world’s global reserve currency.

Why Now?

Bitcoin underwent its third halving event in May 2020, reducing the number of Bitcoin released onto the market every 10 minutes (now at 6.25). 

The two previous halvings have created supply shocks in the market causing Bitcoin prices to react very favourably in the 18 months after the halving date, with gains of 4,600% and 2,330% from 2012 and 2016 respectively.

Bitcoin Halving Supply Shocks, 2012, 2016 and 2020 - Bitcoin the future of money

We estimate that COVID-19 will see globally $50 trillion of government debt coming down the pipeline to support an already debt fuelled world. 

The level of printing is happening at unprecedented levels and a growing cohort of Investors are concerned with the level of debt that governments are taking on. 

In effect, we see the value proposition of Bitcoin becoming stronger and clearer as it’s hard money principles are being reinforced against a backdrop of uncertainty in the global economy.

Bitcoin has proven to be resilient in its early years, and today, every metric of Bitcoin speaks to a story of growing adoption. Is Bitcoin the future of money?

Subscribe to access the Holon Bitcoin insight series over the next couple months.

 

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