A new report by crypto fund manager Grayscale Investments argues that the current Bitcoin (BTC) market structure “parallels that of early 2016 before it began its historic bull run.”
Grayscale predicts that demand for Bitcoin will significantly grow as inflation accelerates, highlighting the need for a scarce monetary commodity, bolstering the use-case of the cryptocurrency.
The report identifies several on-chain indicators showing growing interest in crypto, noting an increase in long-term holding over short-term speculation, amid historic lows for the number of Bitcoin held on exchanges.
Grayscale also notes that daily active addresses are at their highest level since 2017’s all-time highs.
The report asserts that loosening monetary policy from the United States’ abandonment of the gold standard onwards have created cycles of debt-fuelled asset bubbles followed by aggressive quantitative easing.
Grayscale notes the increasing dependence of the U.S. economy on quantitative easing (money printing) to stay afloat and that history shows it’s an addiction difficult to quit.The S&P dropped 20% over three months in response to the Federal Reserve floating plans to reverse its monetary expansion in 2018.
Despite the US dollar remaining “structurally strong relative to other currencies” the report asserts that investors who are wary of inflation amid the “unprecedented monetary and fiscal stimulus” are searching for ways to protect against the ever-expanding money supply — bolstering the case for Bitcoin as a store of value.
Grayscale cites the scoring system used by hedge fund manager Paul Tudor Jones to assess Bitcoin’s attributes against cash, gold, and financial assets and determine the market’s growth potential.
Quoting Jones, the report noted:
“What was surprising to me was [...] that Bitcoin scored as high as it did. Bitcoin had an overall score of nearly 60% of that of financial but has a market cap that is 1/1200th of that. It scored 66% of gold as a store of value, but has a market cap that is 1/60th of gold’s outstanding value.”
“Something appears wrong here and my guess is it is the price of Bitcoin,” Jones concluded.