Have you heard the news?
Corporations are buying bitcoin at an astounding. Tesla recently announced a $1.5 billion purchase of bitcoin, MicroStrategy has been investing billions into bitcoin, Grayscale Bitcoin Trust is increasing in popularity, and countless other corporations are loading bitcoin onto their balance sheets.
At this point, it’s inevitable that institutional investors (read: corporations) are placing some of the billions of cash they have on hand into bitcoin. That said, it’s still only a tiny minority of corporations getting into bitcoin at the moment.
This, of course, begs the question. Who will invest in bitcoin after corporations?
The answer is also pretty clear – governments and the central banks are strong contenders as the next major groups to purchase bitcoin. It sounds unreasonable, we know, but there is a historical precedent for the US government purchasing gold.
This article will cover why this is a possibility and what it means for you. We will also discuss other groups that might purchase bitcoin.
Why Central Banks Might Buy Bitcoin
The argument for a central bank purchasing bitcoin is a little far-fetched, but it’s certainly within the realm of possibility.
It goes something like this, central banks do not like bitcoin as it’s a competitor to gold. Gold, as you probably know, is something that central banks allegedly hold in massive sums. As far as we know, and we don’t because central banks aren’t audited, no central bank has any bitcoin on their balance sheet.
What does this mean?
A scenario in which a central bank or multiple central banks begin a massive purchase of bitcoin to eliminate it from the market is within the realm of possibility.
We know, this sounds far fetched. However, there is historical precedent for this. The US Government made possession of gold illegal in 1933 and forced citizens to sell gold to the government below market rate.
Executive Order 6102 made gold illegal in 1933 and the Gold Act of 1934 forced citizens to sell gold to the government.
The government then set the price of gold to $35 from the previous $20. This led to an increase in production of gold, which the Federal Reserve subsequently bought.
Now, what does this have to do with bitcoin?
Remember, bitcoin is considered digital gold. Is it conceivable that the government bans bitcoin, seizes it, and then sets up their own mining operations to collect future bitcoin?
If it happened with gold, then it could happen with bitcoin.
It’s even more concerning now that the IRS is asking tax filers if they possess any cryptocurrency.
What Would This Mean For The Price of Bitcoin?
This would be good for the price of bitcoin if the government does not artificially deflate the price, which seems unlikely. Demand for bitcoin would skyrocket as the central banks around the world, or in the US, attempt to buy up all the bitcoin in circulation.
Will Central Banks Purchase Bitcoin?
We’ll put it this way – it’s within the realm of possibility. The government could simply ban bitcoin, purchase most of the bitcoin in circulation, and then release a cryptocurrency of their own.
China seems like a likely place this might emerge. They are testing a digital yuan, have banned bitcoin, and most bitcoin mining occurs in China.
With all that said, this is not something you really have to worry about. It probably will not occur, and if it does occur, then it will likely be great if you’re holding bitcoin.
Why Local Governments Might Buy Bitcoin
Local governments are essentially corporations. They often have a CFO and always have budget concerns.
These local governments also have to worry about where to put their money for pensions – bonds are the typical option.
However, the mayor of Miami recently tweeted that he is considering investing some of the city money into bitcoin. This also begs the question:
Why Would Local Governments Buy Bitcoin?
As mentioned earlier, local governments are essentially corporations. They have the same cash and budgetary concerns as any other corporation. And the typically safe, reliable bonds that cities have relied on for half a century are not nearly as profitable as they were in the past.
These city managers then see bitcoin rising 1600% in a year. Obviously, that would be a big boost to the city coffers.
Not to mention that a city that invests in bitcoin is more likely to attract blockchain companies to it, which would obviously increase the tax base.
How Likely Is It That Local Governments Will Purchase Bitcoin?
This is a two-sided coin. On one side, CFOs of local governments see the exponential growth of bitcoin and are certainly tempted by it. On the other side of it, no politician wants to be the politician that blew all the city’s money on cryptocurrency.
Of course, there are a lot of local governments in the world. We rank it as likely that at least a few local governments will invest in bitcoin – it will either work great or work terribly. But a politician somewhere will likely take that risk.
What Would This Do To The Price of Bitcoin?
It would increase the price, but probably not as much as you think. Local governments simply do not have enough free cash to invest in bitcoin to significantly move the price.
The news of local governments purchasing bitcoin will likely have a bigger impact than the actual purchase of bitcoin.
What Other Group Will Buy Bitcoin?
There are other groups out there that could purchase bitcoin. These groups are more secretive and do not have the same financial disclosure requirements as the above two groups, so it’s unknown if this group has already invested in bitcoin and how much they have invested in bitcoin.
High Net Worth Individuals
High net worth individuals are a group that has likely already invested in bitcoin to some extent. These individuals like to diversify their portfolio, and bitcoin has performed well enough to warrant attention from them.
Bitcoin has also received a lot of positive attention on the financial media outlets that this group watches, so the amount of high net worth individuals purchasing bitcoin has likely increased.
As for the price of bitcoin from high net worth individuals investing in it?
It will increase because demand will increase.
That covers it for the groups most likely to invest in bitcoin after corporations. Central banks and local governments are the two most likely options. But the impact of local governments on the price of crypto will be low and central banks purchasing bitcoin will likely be a bad long term signal for bitcoin if it ever occurs.
With all that said, don’t let this news discourage you. Only a very small minority of corporations have purchased bitcoin. There will come a day when every publicly traded company holds bitcoin.
Not to mention the day that bitcoin mining companies are more common than gold mining companies.
All in all, the future of bitcoin is bright. Don’t let any negative news about the future of it discourage you. Bitcoin has always found a way to overcome any problems if given a long