The recent success of digital assets has made many opponents change their stance, and one of them seems to be The Economist, which went from the previous standpoint that claimed that Bitcoin (BTC) and other altcoins are too volatile and a haven for illegal operations, to calling Bitcoin a “useful diversifier” for your portfolio.
This marks a significant turning point. The Economist acknowledges the utility of Bitcoin for portfolio diversification and its relevance for individuals residing in oppressive regimes.
Disliking Bitcoin doesn’t equate to its disappearance; its resilience stems from its incorruptible nature notes one industry analyst on December 19.
Bitcoin Perception, a crypto analyst, agreed with the previous remarks and commented on this simply by:
“The Economist in disbelief.”
Why is Bitcoin so resilient?
Despite facing challenges such as the impact of higher interest rates in 2022 and regulatory crackdowns, the cryptocurrency industry, particularly Bitcoin, has proven remarkably resilient.
Even with the founders of the world’s largest and second-largest crypto exchanges, Binance and FTX, Changpeng Zhao and Sam Bankman-Fried, awaiting sentencing for financial crimes, including breaking anti-money laundering laws and fraud, the industry has not only endured but is thriving.
Bitcoin, for instance, reached a two-year high of nearly $45,000 on December 11, a significant increase from its starting value of $16,600 at the beginning of the year.
Reasons for crypto industry’s resilience
Firstly, the resilience of the cryptocurrency industry is inherent in its technology. Unlike companies, Bitcoin, Ethereum (ETH), and other digital assets cannot go bankrupt or be shut down. They operate on blockchains, which serve as decentralized transaction databases. These lists are validated by a network of computers distributed across the system, motivated to sustain the network by the prospect of receiving new tokens.
One of the reasons to hold crypto is a belief in a future where the technology is widely adopted. In oppressive regimes, individuals use BTC and stablecoins (tokens pegged to a strong currency, such as the dollar) to preserve savings and occasionally conduct transactions.
There is potential for these practices to become more commonplace. Moreover, artists and institutions continue to create and collect non-fungible tokens (NFTs).
The other reason is that, through each boom-and-bust cycle, the distinction becomes more evident. While Bitcoin’s volatility characterizes it as an asset, its price trajectory resembles a mountain range rather than a singular peak, notably aligning with tech stocks.
However, its correlation with the broader market is only moderate. This asset exhibits fluctuations independently, not moving in parallel with conventional investments.
Conclusion
Leading fund managers like BlackRock and Fidelity have submitted applications to introduce Bitcoin Spot exchange-traded funds (ETFs). Considering the historical returns of Bitcoin and its correlations with various assets, this could lead to a surge of funds flowing into BTC.
Prudent investors may contemplate allocating modest portions of their pension funds or portfolios to crypto for diversification.
