Bitcoin as an Influential Macro Asset

Cryptocurrency adoption is steadily gaining traction in most parts of the global economy, but Bitcoin is the key driver. It is now the most popular and most prominent cryptocurrency in terms of market capitalization. While thousands of digital currencies exist, Bitcoin is the industry's reserve currency that investors use as the baseline for determining other cryptocurrencies' price movements and market conditions.

Like other virtual currencies, Bitcoin is a speculative currency with higher volatility than fiat money. However, it has swiftly risen through the ranks, outperforming all the traditional asset classes, including gold and silver. Bitcoin has even outshined the world's reserve currency, the US dollar, despite its price fluctuations. So, what makes Bitcoin such an influential macro asset? This article explains why Bitcoin represents a new asset class.

Investability

Investors and individuals who acquire capital in Bitcoin will no doubt gain exposure to that asset. Crypto exchanges like bitcoin equaliser have constantly reported increasing daily Bitcoin trading volumes. As of 2016, many crypto exchanges reported average daily Bitcoin trading volumes of $1 billion. Bitcoin also has almost the same liquidity as the largest gold ETF and three times that of Vanguard ETF, although they store relatively more assets than the former.

The above statistics indicate that Bitcoin could be an extremely liquid asset over time, suitable for traders. Bitcoin's increasing global accessibility would also impact more liquidity than centralized assets, such as gold that only trade in the United States and Singapore. Some analysts predict international investors will own more crypto than equities in publicly traded companies in the future.

Political-Economic Environment

Bitcoin also differs from other major asset classes in terms of value, governance, and utility. One of the reasons it is more valuable than traditional currencies is that it can facilitate all financial transactions. Bitcoin enables people to transfer and receive money worldwide faster, safely, and at lower costs than fiat money. It is an exclusively digitized and consensus-based asset, ideal for the increasingly digital and socially connected world we live in today.

Bitcoin runs on a blockchain protocol, supported by a decentralized network of computers. Its supply can't exceed 21 million tokens. That is the opposite of fiat currencies, whose applications and supply are subject to government and institutional influences. Instead of intermediaries, Bitcoin's blockchain verifies and validates users' addresses and transaction records on a digital public ledger, ensuring better transparency and lower transaction costs.

Bitcoin's applications are vastly different from other assets. Many merchants, investors, and individuals currently use Bitcoin as a store of value and payment method. Besides, it can also facilitate self-executing contracts, mainly through the blockchain. The idea of smart contracts does not exist in other asset classes or real estate, giving Bitcoin a unique competitive edge.

Price Independence

Perhaps, the key reason why many companies and investors include Bitcoin in their portfolios is that its price bears no correlation to any other asset. Multiple studies have established Bitcoin has almost zero correlation to the traditional assets' performances. Its price is the most unrelated to other price movements of conventional asset classes. That is important to investors since it offers better protection from inflationary risks. While Bitcoin has undergone all-time highs and lows in the past, it has proven to be more resilient to inflation than traditional assets. The diminishing Bitcoin supply and growing demand also enable it to maintain a higher purchasing power over time.

Overall, Bitcoin has several unique characteristics that make it a stronger opponent to most traditional assets. However, Bitcoin's most significant influence as a macro asset mainly comes from its price independence, high liquidity, and decentralized network.