Bitcoin remains a nascent technology. Investors prefer to flock to stocks and gold as safe-haven assets in times of economic uncertainty. According to data Morningstar, in the last three months of 2018, in the case of gold, the S&P GSCI Gold Index increased by 7.2%. Meanwhile, the stock market decreased by nearly 14%. The gold index declined by only two percent, even amid the most recent bearish market when equities dropped by 33%. Then, the price of gold shot up over the next few months to record levels. However, gold volatility can go both ways. In August 2020, Bank of America Global Fund Manager polled fund managers. Thus, almost a third of the surveyed believed that gold was overvalued.
The Fidelity president filed for a new Bitcoin fund to multi-billion-dollar Bitcoin. Furthermore, crypto-asset manager Grayscale reported its biggest-ever quarterly inflows of almost $1 billion. Thus, amid the COVID-19 pandemic, institutional demand for Bitcoin has been rising. The institutional attention showed the seriousness with which major players considered Bitcoin as an investable asset.
However, institutional money is only just starting to enter the cryptocurrency ecosystem. Thus, the market is relatively fragmented and immature. Crypto needs more time to grow however, before it is widely considered a safe-haven asset.
Today, investors use Bitcoin as a store of value. It is because they think the prices will increase in fiat terms. But be aware: it should not be the sole intention of investing in the crypto market. People are making investments in this space because the financial system is breaking down. If this is the case, then we will see an unhealthy price increase followed by a collapse in the crypto index.
Investors will flock to the industry not because of the deflationary nature of Bitcoin or crypto technology but because of fear missing out. Those who are suffering from FOMO believe that because everyone else is investing.
- Trading Instrument