Tuesday 25 August 2020 9:00 am

Bitcoin Is Here To Stay

At a time of economic uncertainty, I’m certain about one thing: Bitcoin is here to stay.

How can I be so confident? In its short life, Bitcoin has already been counted out numerous times. There is even a website that tracks each of its obituaries. However, each time it has come back stronger, and most importantly, higher. Many times exponentially so. In fact, according to recent data 93% of all Bitcoin address balances are profitable.

This means that your investment in Bitcoin would be profitable almost regardless of when you bought.

Unfortunately, those facts fail to stop detractors. Most recently, critics such as Peter Schiff crowed that Bitcoin was finished when it crashed in March along with the rest of the market during an unprecedented flight to liquidity. He argued that Bitcoin missed its moment to serve as a store of value and counterweight to stocks and bonds.

Most critics conveniently forgot that even gold, the original safe haven asset, crashed as well.

But There’s a Twist

That’s what makes what happened next extremely surprising for anyone not actively following the space. Bitcoin recovered – quickly. It is now trading at $11,650 (£8,900), which is up 63% YTD and 197% from the bottom of the crash in March. This performance is in stark contrast to major indices including the FTSE 100 and Stoxx 600 that are down for the year.

To be fair, we’ve seen some exceptions. Nasdaq is up 26% YTD, as is the Shanghai Composite Index (SSE). But there are specific reasons for each of those observations. For instance, Nasdaq is being driven by ‘big tech’ platforms that are experiencing unprecedented growth, while the SEE is benefiting from the head start that the country had in recovering from the crisis.

Starting to See the Light

On Kraken, we saw a remarkable surge in new clients consisting of everyone from hedge funds and family offices to day traders, professional investors and retail investors. We got so busy that we even needed to hire during the economic downturn when people around the world started losing their jobs.

If that wasn’t enough validation for Bitcoin, here’s something else for your consideration.

J.P. Morgan, run by long-time Bitcoin skeptic Jamie Dimon, published a report earlier this spring claiming that Bitcoin passed its first major stress test by recovering from its March sell-off ‘relatively unscathed.’

Will it Continue?

Now the question is whether or not this trajectory is built to last. Well, here are four trends that are bullish for Bitcoin’s future and staying power.

  1. Macro-headwinds will depress traditional markets further

Indices around the world have been propped up by free-spending central banks that have been willing to print ‘unlimited’ amounts of money. Governments have spent trillions of dollars around the world (most of it in developed countries), yet we are still far off from the promised V, U, or W-shaped recovery.

All of that is leading to further rounds of fiscal and monetary stimulus. Another $1 trillion bill is being discussed in the U.S. Congress and the Federal Reserve is reported to be recommitting itself to obtaining an inflation rate of 2%. The UK announced a £100bn expansion of its asset purchase program in June and is rumored to be setting the table for additional stimulus. In Europe, leaders just agreed to a €750 billion stimulus package that seems small by comparison.

At the same time, there will only be 21 million Bitcoin printed. Ever. And it cannot be changed. We find that many of our clients find comfort in that simple fact.

  1. Regulators are warming to crypto

Bitcoin has long had to fight for its right to exist. It had to prove that cryptocurrencies are not ‘tailor-made tools’ for criminals and that their primary use case is not to facilitate illicit activity (it isn’t).

Fortunately, regulators are finally warming to crypto, which should usher in an entirely new wave of adoption. Here are two examples.

First, our derivatives platform, Kraken Futures, just became the first cryptocurrency firm to receive a Multilateral Trading Facility licence by the UK’s Financial Conduct Authority. This license allows it to offer a wider range of products and deal with regulated investors with strict investment mandates.

This makes us the only regulated derivatives marketplace in Europe to offer trading in crypto products.

Second, and perhaps even more consequentially, the U.S. Office of the Comptroller of the Currency (OCC) issued a letter stating that “a national bank [and a federal savings association] may provide . . . cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency.”

This means that banks across the U.S. can hold Bitcoin and other types of crypto assets on behalf of their clients. A very big deal, and one that could set a tone for the rest of the world.

  1. Exchanges are becoming increasingly professional

We take on a huge responsibility when clients entrust us with their money. Therefore, Kraken takes security extremely seriously.

In fact, our mantra is to be ‘productively paranoid.’ We invested heavily in security from the start, as an antidote to the issues with Mt. Gox, and thanks to our world-class team we’ve had a flawless record on security.

Additionally, customer service is paramount when it comes to our exchange. Everyone from our VIPs to new clients have a right to expect prompt and personalized service.

We understand that crypto can sometimes seem daunting. We want to make it easy for everyone to have their questions answered and get to trading and building their crypto wealth.

  1. Seeing an increase of even easier onramps

Crypto firms like ours are making it even easier for people to buy Bitcoin.

We have more banking partners than any other cryptocurrency firm. This is important because people need easy and local ways to deposit and withdraw money on and frome exchanges. Firms like ours are building the ramps and bridges the world will need to safely invest in crypto.

Combine that with ever-improving user experiences and customer service, and the end result is that people are running out of excuses for not owning crypto.

So what? A Financial System Fit for the Digital Economy

Our economy is going through a period of innovation and upheaval. Everything is becoming digitized, and it is not just because we are afraid to touch paper money right now.

Bitcoin has been counted out hundreds of times since its creation 10 years ago, but in each instance it has come back stronger.

I would encourage the curious and skeptical alike to consider why it has been so resilient.

Jesse Powell is co-founder and CEO of Kraken, one of the largest and most trusted cryptocurrency exchanges in the world. Kraken was founded in 2011. It is consistently rated the most secure crypto exchange, and is #1 in Euro market share. Powell is a 15-year veteran of the virtual currency and gaming industries. Prior to co-founding Kraken, Powell was founder and CEO of Lewt, Inc., a company that delivered services for assisting players in online-based video games with account management and in-game currency, from 2001 to 2011. He was also the founder and CEO of another company, Internet Ventures & Holdings, which provided services to the online gaming community. In 2007, Powell started the Verge Gallery & Studio Project in Sacramento. He became a board member for the Verge Center for the Arts in Sacramento in 2010, a position he holds to this day. To learn more, please visit the Kraken learn center: https://www.kraken.com/en-us/learn.