How Bitcoin Could Reach a New All-Time High

Bitcoin (BTC -0.76%) has traditionally been seen as a hedge against central banks. But a Harvard Ph.D. the candidate believes it is these central banks that could kick Bitcoin’s next leg up and possibly give it the momentum to return to previous all-time highs.

Matthew Ferranti is pursuing his PhD in economics, and his latest working paper covers a topic most economic studies tend to avoid. His work attempts to prove that now, more than ever, the likelihood of a central bank or government adding Bitcoin to its reserves is at an all-time high.

Politics and Bitcoin

When Russia invaded Ukraine in February 2022, global powers such as the United States and the European Union coordinated a comprehensive economic attack on Russia by imposing sanctions on the economy. They froze the assets of specific individuals, banned the import of Russian oil, and even targeted Russian banks, effectively excluding them from the world’s financial system.

These sanctions were the first in terms of scope and breadth, but sanctions are not new, and the number of countries or individuals receiving US sanctions continues to grow. The US Department of Treasury lists all the active sanctions programs it is currently engaged in, which include more than 22 countries.

Ferranti believes that the criteria for what merits new sanctions is loosening, and as this list grows, there is a greater precedent for these outcast countries to seek alternatives. Traditionally, gold has been seen as a way to skirt sanctions, and Ferranti proves that gold remains a valuable hedge against sanctions, but he suggests that in today’s digital world, an asset like Bitcoin may become even more desirable for many reasons.

First, Bitcoin tends to remain uncorrelated to gold. Owning Bitcoin can provide diversification on a central bank’s balance sheet beyond just gold or the US dollar. Additionally, due to Bitcoin’s digital nature, it is more flexible for a variety of needs. Ferranti suggests that Bitcoin can be beneficial in contrast to gold for countries that have very poor infrastructure and do not have the ability to store large amounts of gold.

Or maybe the infrastructure is there, but the country has a huge amount of reserves. Ferranti said countries like Singapore or China would not be able to buy enough gold to adequately hedge against possible sanctions. As he put it, “you can’t just turn around and buy $100 billion worth of gold,” but you can buy $100 billion worth of Bitcoin and store it on any computer.

Bitcoin is already on the world stage

Bitcoin enthusiasts may point out that countries like El Salvador and the Central African Republic have both made Bitcoin a form of official currency in recent years. El Salvador took it a step further by buying the cryptocurrency and now owns somewhere around 2,381 bitcoins as of July 2022.

While two countries have already pioneered this new strategy for a Bitcoin-inclusive economy, that news mostly fell on deaf ears. El Salvador and the Central African Republic were on the periphery of the world economic scene. Should a country like Russia, with the world’s 11th largest economy, or an oil-producing country in the Middle East that plays an integral role in the world economy pursue a Bitcoin-centric model, it could cause a series of dominoes to fall. Globe.

It seems ironic that Bitcoin could be embraced by central banks and governments, considering that it was invented to bypass those same entities. However, should this strategy come to fruition, it would be revolutionary and potentially provide the fuel for Bitcoin to not only return to all-time highs, but possibly become an established worldwide resource.