Bitcoin (BTC) and other cryptocurrencies are often seen as attractive to speculators because they are decentralized, digital currencies that are not subject to government regulation or control. However, according to Tom Lee, the head of research and co-founder of the independent research firm Fundstrat Global Advisors, this is not the case.
In fact, Lee believes that crypto is actually not speculative enough. These remarks were made this week during the Bitcoin 2022 Conference in Miami.
While it is true that Bitcoin and other cryptocurrencies have attracted a great deal of speculation, this does not mean that the underlying technology is not sound. In fact, many believe that Bitcoin and blockchain technology have a great deal of potential. As such, while Bitcoin may be relatively speculative, it is not necessarily a bad thing.
To illustrate his point, Lee says that based on his firm’s estimates, oil’s speculation-to-use ratio – which measures the amount of oil that is being bought and sold for speculation, as opposed to being used for actual consumption – is 31:1. If the ratio is high, it means that there is more oil being bought and sold for speculation than for actual use. This can lead to higher prices and less oil available for consumption, which can be detrimental to the economy.
So what Lee’s estimates suggest is that every barrel of oil that’s used to power our cars is traded 31 times as a form of speculation by traders/investors.
The greenback’s speculation-to-use ratio meanwhile stacks up at 96:1 in various financial markets. As for crypto, Lee’s analysis reveals that the speculation is quite low compared to other markets, trading at two-and-a-half times per coin.
In his speech Lee also touched on Bitcoin’s volatility, saying that as the cryptoasset’s market value continues to increase, its volatility is expected to drop dramatically in the coming years.
Drawing parallels between BTC and gold, Lee said that once the yellow metal hit a $10 trillion market cap, its volatility experienced a significant drop. Lee sees the same dynamic taking place with Bitcoin as the decrease in volatility will make the apex cryptocurrency a more stable and appealing investment for both individuals and businesses. Additionally, as more businesses begin to accept Bitcoin as payment, the demand for the cryptocurrency is expected to increase, further driving down its volatility.
While Bitcoin’s $820 billion market cap is only a fraction of gold’s $12 trillion, some industry leaders believe Bitcoin could become the leading store of value at some point.
As an asset, Bitcoin has a lot going for it. It is scarce, durable, and portable. And, unlike fiat currencies, it is not subject to the whims of central banks or other financial institutions.
This makes Bitcoin a very appealing store of value, especially in an era of quantitative easing and negative interest rates. Billionaire crypto investor Mike Novogratz is one of those BTC store of value believers, citing the crypto’s limited supply and global reach as two factors that could contribute to its rise.
At last check, Bitcoin was trading around $42,700, shedding more than 2% of its value over the previous 24 hours.