Bitcoin (CCC:BTC-USD) has had quite a good run so far this year. It is up 68.5% as of March 2 and is likely to move higher over the year. Bitcoin is also gaining acceptance on Wall Street and with larger banks who will act as leaders in the eventual usage of cryptocurrencies.
But I find it interesting that as Bitcoin goes up, more white papers are being published on it by Wall Street. Banks seem to be inching closer to accepting it as some sort of reserve currency at the minimum.
Recently the Financial Times had fun pointing out all the errors in a recent report by Citibank on Bitcoin. The FT points out, for example, that the very first chart showing that 36% of merchants in the U.S. accept Bitcoin is absurd on its face. They later found out that the source was suspect. There were numerous other “chart crimes” and the FT had a separate article on them.
Nevertheless, I am afraid that the Financial Times got the main point completely wrong. The fact that Citibank allowed one of its think tank divisions to even write such a report is what is important. In other words, banks are inching closer to accepting Bitcoin, and even promoting it.
Expect to see more white papers like this. It seems to be a sort of intellectual crossing point after which a bank or brokerage firm begins dealing in Bitcoin and crypto transactions.
For example, here is a report by a consulting firm BCG that makes the point explicitly: “How Banks Can Succeed With Cryptocurrency.” The paper points out that JPMorgan Chase (NYSE:JPM), for example, has already introduced its own cryptocurrency, JPM Coin for faster funds and transaction transfers between clients. Morgan Stanley (NYSE:MS) has offered blockchain-based investment products since 2018. Goldman Sachs (NYSE:GS) has a new digital leader studying the whole thing.
According to BCG, 100 banks have already tested using Ripple (CCC:XRP-USD) for instant payments. And the European Central Bank has started studying using a digital Euro. It’s not clear how that relates to a blockchain transaction system. But the more banks are looking into cryptocurrency, the higher the odds that they will begin accepting Bitcoin and other major cryptos sometime in the near future.
Whether they buy Bitcoin or not, investors should begin considering diversifying. The best way to do this is to put a small portion of their investment portfolio in Bitcoin or another major cryptocurrency.
Over time, adding to the position will allow one to gain an average cost that will take advantage of the variance in its price. Moreover, consistent adding to the crypto position will help the investor to always have a lower average cost.
If the opposite happens, for a while the average cost will be higher than the price of the crypto. Eventually, as the scarcity factor in Bitcoin’s supply gains a solid foothold the price will likely rise.
More corporations are now buying Bitcoin as a sort of insurance policy in case it really begins to take off. They might also be worried about the value of the dollar as the world’s reserve currency. Depending on how high it goes, the theory is that eventually, Bitcoin might eventually challenge gold or the U.S. dollar as an alternative currency. Barron’s recently wrote that more corporations are buying Bitcoin as a store of value.
Following their lead, more institutions are likely to begin buying major cryptos. They want to diversify their holdings and also buying them as a store of value. I suspect that more individual buyers of Bitcoin will also follow this trend as well, especially if the major banks begin recommending it as a diversification tool.
On the date of publication, Mark R. Hake held a long position in Bitcoin.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
The post Big Banks Are Moving Toward Embracing Bitcoin appeared first on InvestorPlace.
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