Saturday, April 20, 2024

3 Reasons Why People Choose to Hold Bitcoin

Bitcoin has become the world’s famous and most preferred cryptocurrency on which individual and institutional investors choose to pour their investment funds. For more than a decade, it has left virtual currency enthusiasts in awe, for this crypto-asset has survived regardless of its notorious volatility and lingering mystery.

Indeed, Bitcoin has gained its share of critique, believing that this cryptocurrency is merely a speculative asset like the Tulip Mania in the 1600s. Popular public figures have trusted the cryptocurrency concocted by a certain Satoshi Nakamoto and introduced it in the global financial system in 2009.

Among them is Tesla’s chief executive officer Elon Musk. In July 2021, he confirmed that he and his companies Tesla and SpaceX own units of the world-famous virtual currency. But what drives people to choose Bitcoin as an investment asset and exchange mode?

1. People’s disappointment and distrust towards governments and central banks.

The 2008 financial crisis demonstrated the US Federal Reserve System’s incapability of managing the U.S’s financial system. Plenty of people lost their livelihoods, homes, and personally filed for bankruptcy at that time.

Unsurprisingly, these citizens lost their faith in traditional monetary policies and financial institutions. When ordinary Americans look back on this unfortunate scenario, many believe that Bitcoin is the solution to these problems.

After all, this particular cryptocurrency is decentralized and not subject to any authority that could potentially fail the public. Bitcoin’s trading price may be subject to fluctuations, yet it strictly depends on its market capitalization.

“Bitcoin and decentralized cryptocurrencies are evolving alternative assets and will very much be a part of the future of global financial markets. Leading asset servicing institutions such as Bank of New York Mellon, Northern Trust and Fidelity recognize this, and will be offering custody services for digital assets in the near future. Once central banks and sovereign institutions acknowledge this and commence investing in digital assets, we expect a significant decrease in volatility. Of course, the institutional pioneers that are early adopters and first movers have the potential to enjoy greater yield upside.”, says Avi Ifergan, Former Global Head of Financial Institutions at Bank Leumi – Israel’s largest bank. A fervent proponent of bitcoin and the potential of cryptocurrency’s ability to reshape global financial systems, Avi now serves as the CEO and Founder of IBAC, an international bitcoin advisory corporation assisting governments in cryptocurrency adoption.

2. Necessity for a good hedge against inflation and hyperinflation uncertainties

Like gold, Bitcoin is viewed as a strong defensive asset to protect one’s assets during periods of high inflation.

Inflation and hyperinflation are threats to consumers who commonly transact using fiat currencies like the US dollar. In the summer of 2021, American consumers were adversely affected by high inflation, in which the cost of basic goods soared amid the ongoing COVID-19 pandemic.

At that time, people were also grappling with widespread unemployment and uncertain stimulus financial aid, as a result of the vicious international healthcare crisis. Fiat currencies are also involved in another kind of national currency instability called hyperinflation.

In Zimbabwe, for example, hyperinflation resulted from political corruption, a weak economy, rising national debt, and significant declines in exports and economic output. During the country’s peak month of hyperinflation in mid-November 2008, inflation reached 79.6 billion percent month-on-month and 89.7 sextillion percent year-on-year.

Between 2007 to 2008, Zimbabwe’s central bank, the Reserve Bank of Zimbabwe, released one hundred billion Zimbabwe dollar banknotes and one hundred trillion Zimbabwe dollar bills. This situation demonstrated the mind-boggling hyperinflation rate in the southern African landlocked nation.

The banknotes with skyrocketing values actually meant little in Zimbabwe then. The 100 billion-dollar banknote could merely purchase a consumer a loaf of bread or three eggs. Recent year on year Zimbabwe inflation statistics stands at greater than 500%.

3. Need for better ways to send remittances

Since the height of globalization in the mid-1990s, migrant workers have been mobile, moving from their countries of origin to their host countries where their foreign employers are based. These 21st-century laborers choose to work overseas to enjoy higher salaries and better working conditions.

Moreover, they share the fruits of their hard work with their families back home via funds transfer (remittance) service providers, which is often slow and costly. For example, Overseas Filipino Workers or OFWs abound in Middle Eastern countries like Qatar, Oman, and Saudi Arabia.

The Philippines also deploys Filipino professionals in Hong Kong, Canada, the United States, and many other nations. These laborers serve as domestic helpers, caregivers, nurses, and many other occupations.

Bitcoin has played a significant role in the remittance realm. It has gained preference among migrant workers for eliminating the need to settle expensive transfer fees and other service charges as typically imposed by mainstream remittance companies.

The latter usually charge twice or more of the fees they have on sending money abroad. Additionally, Bitcoin is a quick mode of transferring money from sender to recipient 24/7, eliminating the requirement for an intermediary.

These advantages offered by the flagship cryptocurrency are among the main reasons El Salvador President Nayib Bukele decided to make it a legal tender in his country in 2021. He said that Bitcoin makes it easier for his countrymen living abroad to send remittances home.

Furthermore, the Chainalysis 2021 Global Crypto Adoption Index, released in August, presented findings on people living in third-world nations. People in emerging markets like Venezuela, Nigeria, Vietnam, and Kenya are more inclined to use Bitcoin in receiving and sending remittances and conducting business transactions.

These three grounds are the common reasons why people choose to invest in Bitcoin today. Indeed, as people look for easy banking alternatives, cryptocurrency comes out on top due to its decentralized fashion and its ability to quell uncertainties caused by inflation.

Based on Chainalysis’ news report, there is a growing trend of crypto-asset adoption in many parts of the globe involving ordinary people using virtual assets in their day-to-day transactions. This transition exhibits the fact that fiat currencies, credit cards, and other traditional financial instruments are no longer the only exchange modes people use worldwide.

Cryptocurrencies like Bitcoin are beginning to take off in many nations. Although Bitcoin is still a controversial asset in the United States, it is gaining immense support among individual and institutional investors and foreign governments, as well as countries like El Salvador.

With this trend, cryptocurrency enthusiasts believe that the perception of Bitcoin is moving in the right direction, from a fringe and controversial asset to one that is legitimate, acceptable and part of the institutional consensus.  

Sam Allcock
Sam Allcock
Sam heads up Cheshire-based PR Fire, an online platform that has already helped over 10,000 businesses to grab widespread media coverage on their news at an extremely accessible price point.

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