Crypto’s Biggest Bear Case Has Been Debunked

|March 12, 2024

Crypto is on fire right now. You can almost hear investors scrambling to get a piece of the action.

But as a Manward subscriber… you’re well ahead of the curve.

Back in December, I told you that Bitcoin ETFs would cause crypto to soar (Bitcoin is up 66% since).

And while I’ve been telling anyone who would listen over the past year that crypto should be in everyone’s portfolio, I was largely in the minority.

There was one “bearish” take on crypto that kept a lot of investors from flooding into the crypto market in 2023.

But while it’s a convincing one, it’s been proven 100% wrong this cycle.

Higher Rates? No Problem!

The bear case in question hinged on the belief that crypto thrives solely in an environment of low interest rates.

Many folks branded Bitcoin as a speculative asset that benefits from cheap money. Critics argued that as the cost of borrowing increased, the allure of cryptocurrencies would diminish.

The logic seemed sound. Higher interest rates typically divert investors’ attention toward safer, yield-bearing assets, leaving riskier ventures like crypto in the cold.

And with interest rates at their highest level since 2001, many expected crypto to remain in a benign malaise for the foreseeable future.

Federal Funds Effective Rate

Yet, here we stand, with the Federal Reserve’s benchmark interest rate at 5.33%. That’s a sharp pivot from the near-zero rates that previously underpinned past crypto bull markets.

However, the resilience of Bitcoin and its peers in the face of tightening monetary policy paints a different picture.

Crypto Was Not a “ZIRP” Phenomenon

Bitcoin’s rebound to all-time highs comes amidst a backdrop of rising interest rates and an average mortgage rate soaring to 7.27%. That shatters the misconception that crypto can flourish only when borrowing is cheap.

This isn’t just a blip on the radar. It’s a robust demonstration of crypto’s staying power and its evolving role in the global financial system.

So, what gives?

How has Bitcoin managed to defy gravity and climb higher despite financial tightening?

To understand what’s going on, we need to look at several factors.

It’s crucial to recognize that the narrative around cryptocurrencies has matured. Bitcoin is increasingly viewed not just as a speculative gamble but as a legitimate asset class – a digital gold.

This is the view held by millions of individual investors. But it’s also been validated by both institutional money managers and regulators this year, evidenced by the approval of the latest Bitcoin ETFs.

The shift in perception has implications for investor behavior. Even in a high-interest-rate environment, investors are allocating portions of their portfolios to crypto. They’re seeking diversification and protection against the erosion of the dollar’s (and other currencies’) value.

Plus, the introduction of Bitcoin ETFs has significantly lowered the barrier to entry for institutional and retail investors alike. These financial instruments have legitimized crypto investments. They’ve made them more accessible… and thereby expanded the investor base to include more traditional and conservative market participants.

New and Improved

The resilience of Bitcoin amidst rising interest rates also underscores a broader disillusionment with traditional financial systems and a growing appetite for alternatives.

In a world where central bank policies have profound implications on savings and investments, the decentralized nature of cryptocurrencies offers a semblance of control and security. It’s attracting investors even in less favorable macroeconomic conditions.

Additionally, technological advancements and broader adoption of blockchain technology fuel the bullish case for cryptocurrencies.

From enhancing financial inclusivity to revolutionizing supply chain management… the underlying technology of cryptocurrencies is finding practical and value-adding applications across various sectors.

This technological promise, combined with growing mainstream acceptance, bolsters investor confidence in the long-term prospects of crypto… no matter the prevailing interest rate environment.

So while every traditional Wall Street analyst thought high interest rates would throw cold water on any crypto rally, that thesis has been thoroughly debunked.

And, honestly, anyone spreading this lie doesn’t have a clue and should be ignored.

Yes, interest rates undoubtedly influence market dynamics. But the unique value proposition of cryptocurrencies – bolstered by technological innovation, wider adoption and increasing institutional interest – ensures their relevance and appeal in any economic climate.

While we’ve already made plenty of money this cycle, my analysis shows Bitcoin has room to head much higher.

And I’m putting my money where my mouth is.