Bitcoin has found a place in the global portfolio
Bitcoin is now an investment held by regular people who want to diversify their portfolio, while the rest of the cryptocurrency world (stablecoins aside) struggle to catch on.
Why it matters: The question of "what is bitcoin actually good for" has been answered by the market: It buys (and is buying) the digital gold narrative.
Zoom in: Bitcoin was created to be a medium of exchange on the internet. But what really worked for it was becoming an alternative investment — something that has a good track record of going up over time, even if its day-to-day volatility can be stomach churning.
The original blockchain may end up being useful to the world in other ways, but bitcoin's basic function as a store-of-value has been established.
In tech world parlance, Satoshi Nakamoto's innovation has found product-market fit.
Catch up quick: The approval of Bitcoin ETFs 15 months ago proved that a lot of capital had been waiting to hit buy on bitcoin as soon it got some kind of regulated wrapper.
And last week was the best week this year for crypto ETFs.
What they're saying: The ETFs "basically helped, if you will, normalize cryptocurrency into an investable asset," Mike Johnson, a partner at EY, the giant professional services firm, tells Axios.
In recent research his company did in collaboration with Coinbase, they found that a majority of institutional investors have become comfortable with bitcoin as an investment, and plan to increase their allocations.
Further, EY is seeing people start with ETFs and then get interested in directly purchasing bitcoin, suggesting that the new instruments are an entry point to greater sophistication about the asset's unique features.
Other forces are at work now, too. Charles Edwards, of Capriole Investments, a quantitative bitcoin-focused hedge fund, said on an Unchained podcast, that there's a flywheel developing as corporate investors imitate the purchases of publicly traded Strategy (formerly MicroStrategy).
Most notably, SoftBank and some big players in bitcoin just launched Twenty One, a big fund, with $4 billion in BTC, aimed at making similar moves.
"It's probably going to be the main driver of price action the next 12 months," Edwards said.
Other digital assets
Investors' recent push into bitcoin — and mainly only bitcoin — can be seen in the recent surge in "bitcoin dominance," a metric measuring BTC's share of the total crypto market cap.
At 64%, it's at the highest level since January 2021.
Between the lines: Other crypto assets and blockchain projects are stuck in what's known as the trough of disillusionment — the period when a much-hyped class of product loses interest from the public because it hasn't lived up to expectations.
Yes, but: EY's Johnson ascribes the weak demand for other blockchain-powered products to regulatory uncertainty and also their very newness.
Regulatory clarity should bring more products to market as more market participants feel comfortable innovating on chain.
Bitcoin "decoupling"
Bitcoin is up 700X since May 2013. The S&P 500 is 3X over the same time period. Bitcoin has also doubled in value since January 2024.
This is what the believers are looking at when they call bitcoin a hedge against inflation.
They aren't watching the asset on a weekly or monthly timeline. They are looking at what happens if they hold it for years.
Zoom out: At present, with the larger economy awash in uncertainty, many investors have retreated into gold, driving it to a new all-time high.
At first, bitcoin didn't benefit from that same shift, but that has started to turn around more recently, making it again — at the moment — look more like digital gold than a risk asset.
The bottom line: "Obviously, there's some trepidation in the market because the last crypto winter," Johnson said.
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Bitcoin: US-China Talk Optimism, Institutional Buying May Spark Retest of ATHs
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Bush in 2001 added $8 trillion to the deficit; a further round of cuts by Trump in 2017 contributed another $1.8 trillion. Spending went up as well, but the nonpartisan Committee for a Responsible Federal Budget estimates that 37 percent of the current deficit can be attributed to these tax cuts. For the Republican Party, tax cuts are now divorced from any specific fiscal context and have become a way of life. In a fusion of ideology and self-interest, a powerful nexus of monied interests, lobbying groups, members of Congress, conservative intellectuals, and media worked together to enforce anti-tax orthodoxy and stamp out dissent. Tax cuts were one of the few policy areas that the party's disparate factions—Wall Street Republicans, Main Street Republicans, Silicon Valley libertarians, and social conservatives—could all agree upon. Yet this long-established anti-tax consensus now confronts several looming challenges. The first is the party's shifting composition. The Republican base has become more populist in temperament and more working class in character, and low-income voters are less sympathetic to tax cuts that mainly favor their high-income peers. Recent polling by the Pew Research Center reveals that a plurality of Republicans and Republican leaners actually prefer raising taxes on households with incomes greater than $400,000, by a margin of 43 to 27 percent. (Among all Americans, 58 percent favor raising taxes on those with high incomes, whereas only 19 percent favor lowering them and 21 percent would keep them level.) Treasury Secretary Scott Bessent's claim during his confirmation hearing that high-income 'job creators' need the incentive of tax cuts may have been welcome to the GOP's wealthy donors and 'starve the beast' enthusiasts, but such views are now a minority in the party. A second challenge is the distributional impact of the new bill's tax-cutting measures. Many commentators wonder why, during a time of record deficits and debt, a further round of upper-income tax cuts is necessary. Analysis from the Tax Policy Center notes that while average effective tax rates barely changed from 1945 to 2015 for most Americans, the rates for high-income households have fallen sharply. Tax Policy Center scholars have also noted that nearly half the benefits of an extension of the Trump cuts would go to the top 5 percent of households (those making $450,000 or more). Democrats have been quick to seize on the inequity of cutting Medicaid and SNAP benefits to finance this upper-income giveaway. The third challenge is that, by taking revenue increases off of the table, Republicans have saddled themselves with an unsolvable fiscal conundrum. Cuts on the order of 27 percent across the entire federal budget would be needed to bring spending in line with revenue. If major categories of expenditure such as Social Security, Medicare, defense, and debt servicing are exempted, spending cuts alone cannot tackle the deficit. Acknowledging the magnitude of this gap, a few fiscal hawks in Congress, such as Senator Rand Paul and the House Freedom Caucus, have called for even deeper cuts. But many Republicans fear with justification that such a course would bring grave political risk. What Republicans are not grappling with, but should, is the disconnect between their intellectual justifications and economic and fiscal reality. Their first rationale is that tax cuts ultimately pay for themselves in higher government revenues through increased economic growth. To be blunt, no persuasive evidence exists for this contention at either the federal or the state level, including in the record of the 2017 cuts now proposed for extension. Republicans' second rationale makes a more nuanced assertion that higher taxes will depress economic growth, reducing jobs and inhibiting the downward distribution of income. Yet rigorous comparative analyses across multiple countries have found no serious evidence to support this contention. The economist Paul Krugman has referred to such arguments as 'zombie' ideas that keep 'eating people's brains' long after their intellectual credibility is dead and buried. Buffeted by these forces, cracks are starting to appear in the GOP's anti-tax orthodoxy. Some MAGA voices, such as Steve Bannon, have recently come out in favor of a tax hike on the wealthy to finance cuts for the middle class. Others, such as Vice President J. D. Vance and Project 2025 eminence Russell Vought, have expressed interest in raising taxes on those earning more than $1 million a year. They met fierce resistance from Republican luminaries such as Newt Gingrich, Larry Kudlow, Sean Hannity, Mike Johnson, and Ted Cruz. And the ultimate enforcer of tax-cutting orthodoxy, Grover Norquist, recently compared any Republicans willing to consider tax increases to a 'little cancer cell in the party.' Trump himself has tried to have it both ways, toying with the idea of raising taxes on the wealthy to cater to his populist base without actually doing anything to forestall his tax-cut extensions. His gesture toward putting America on a sounder financial footing is to argue that his tariffs can play an important role in replacing income-tax revenues. The Congressional Budget Office has calculated that, under certain configurations, tariffs could raise significant additional revenues over the next decade. But all credible projections suggest that tariffs will be unable to compensate for the lost income tax. They are also a highly regressive form of taxation that may spark retaliation by other countries, result in higher inflation, and reduce both economic growth and the tax revenues that flow from it. [Read: Republicans still can't say no to Trump] Republicans who are serious about the deficit have several options. The most obvious one would be to close the gap between the tax revenues owed to the government and what it actually collects. The IRS estimates that in 2022, about 13 percent of taxes, totaling $606 billion, owed to the federal government under our existing tax code were not paid. Many analyses of federal tax policy and enforcement—including some by conservative scholars—have argued for beefing up the IRS, with a focus on high-net-worth individuals and households. Few investment opportunities yield a higher rate of return than IRS audits on upper-income filers, yet the Trump administration and congressional Republicans have moved in the other direction and sought to cut the agency's staff and funding. Other steps Republicans could take would aim to end tax breaks for the über-rich. Sunsetting the 2017 bill's higher estate-tax deductions, which now stand at $14 million for individuals and $28 million for married couples, would bring in an estimated $201 billion over the next 10 years. The state and local tax (better known as SALT) deduction changes in the proposed bill are extremely regressive, with much of the benefit flowing to upper-income households; they are another loophole that could be closed. Republicans could also raise revenue specifically for transportation infrastructure by increasing road-user fees and gas or mileage taxes. (The gasoline tax has been frozen at 18.4 cents a gallon for more than 30 years.) None of the above will be easy, or even possible, to achieve in this Congress. The Republican Party has come a long way from the days when Ronald Reagan raised taxes four times after his 1981 tax cuts led to higher projected deficits. The official posture of fiscal rectitude continues, but the GOP's $10 trillion secret—the amount that tax cuts have contributed to the national debt—is that, if forced to choose, many on the anti-tax right would prefer bigger deficits to higher taxes. The United States no longer has that luxury. The government's interest payments have become larger than its defense expenditures, debt-rating agencies are downgrading the U.S., bond traders are demanding higher yields on U.S. treasuries, and risks to the dollar as the world's reserve currency are piling up. To redeploy Thune's phrase, something is 'seriously wrong' with a party that worries about running deficits yet refuses to consider any sustainable way to pay for them—and instead slashes services to its rural and working-class constituents. Rigid principle must give way to pragmatism: Any genuine deficit-reduction conversation needs to include not just spending cuts but higher revenues. Article originally published at The Atlantic
