The current macro environment is the best scenario for bitcoin; it is exactly what the digital currency needs.
As Fidelity notes in its latest report on “Bitcoin Investment Thesis,” bitcoin as a unique investable asset is gaining a lot of traction, which is to increase in response to the Federal Reserve cutting their benchmark interest rate to zero or negative.
“In a world where benchmark interest rates globally are near, at, or below zero, the opportunity cost of not allocating to bitcoin is higher,” reads the report by Ria Bhutoria, the Director of Research.
What makes bitcoin an attractive alternative investment is its low correlation to traditional assets.
When it comes to retail, it has more to gain as the retail investors’ channel for financial information and advice shift to Twitter, Reddit, Telegram TikTok, and YouTube, a new wave of retail investors “will undoubtedly flow to bitcoin and other digital assets.”
As a matter of fact, the report found that “The annualized returns of portfolios with an incrementing allocation to bitcoin outperformed a portfolio with no allocation to bitcoin over all time horizons displayed here, ending in September 2020.”
Given the growing interest in alternatives amidst low yields, overvalued equities, and the potential for funds to flow from fixed income into other asset buckets, it is beneficial to have BTC as a component of the alternative bucket.
With a market cap of just $210 billion, it is a drop “in the bucket compared with markets bitcoin could disrupt,” such as a store of value, alternative investments, and settlement networks.
The alternative investment market was sized alone at $13.4 trillion in 2018, as per the CAIA Association. If BTC were to capture even 5% of it, it would equate to an incremental $670 billion growth in its market size, and a 10% growth would take it to over a trillion dollars.