There are several opinions about the role of Bitcoin regarding what functions of money it performs or can fulfill in the future. These well-known thesis look as follows:
To put it simply, all functions can be reduced to two: exchange and accumulation of wealth. Here is how influencers regard Bitcoin's compliance with these roles.
“The first wave of crypto assets, of which Bitcoin is the best known, have so far failed to provide a reliable and attractive means of payment or store of value. They have suffered from highly volatile prices, limits to scalability, complicated user interfaces and issues in governance and regulation, among other challenges. Thus, cryptoassets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments.”
Ray DALIO, American businessman, billionaire, founder of Bridgewater Associates, January 2020:
“There’s two purposes of money, a medium of exchange and a store hold of wealth, and bitcoin is not effective in either of those cases now.”
Dalio called high volatility the main problem of Bitcoin, noting also that limited scaling will not allow it to spread widely to the masses. However, looking at current events, let’s take oil prices as an example — they are as volatile as the price of Bitcoin nowadays.
There are several detailed reviews on the Internet why Bitcoin performs all the functions of money and the same amount of materials about why it doesn’t. Even regulators cannot conclude what Bitcoin exactly is — money, commodity or something else, and each of the local regulators has its own opinion and standards. However, neither prohibitions, nor approvals of different states cannot bring the world to the understanding of the essence of cryptocurrencies. It is better to turn to real examples of how people from different countries behave in crises of recent years.
Similar behavior occurs in the precious metals markets — during a crisis, investors dump cheaper stocks and buy gold. This confirms the hypothesis that in local situations, bitcoins are considered both as a means of payment and as a means of saving.
The table below shows the correlation between Bitcoin and the traditional benchmarks of the financial market for Q4 2019. The greatest correlation with Bitcoin was performed by gold and silver.
In addition to Venezuela, an economic downturn occurred in Turkey and Argentina. In Turkey, according to Statista polls, 20% of respondents own cryptocurrency or use it for payment. Before the sharp increase in demand for Bitcoin, the country faced an increase in fees, inflation, an increase in the discount rate and the collapse of the national currency, lira.
However, the current global crisis has shown that bitcoin and other cryptocurrencies did not pass the test. In just a few days, the entire market collapsed by 50%, just the same way the stock markets did. Many decentralized finance projects are now on the edge of subsistence. It became clear that for now, cryptocurrency is not a safe haven when it comes to the global level of trouble.
However, the total downfall opened up additional investment opportunities, and it should also be noted that the interest in cryptocurrencies is still growing. So far, it can be said that during the local crisis, the demand for BTC, gold, and similar assets exceeds the daily average. At the same time, the position of the regulator will not be decisive — residents will still find ways to buy the assets where their savings have a greater chance of being preserved. As for the global upheaval, a small number of economists can now certainly forecast what is worth investing to.