In recent years, the crypto space has witnessed the exponential growth of institutional investments in Bitcoin, leading to its increased mainstream adoption. However, some argue that this influx of institutional interest, coupled with the actions of centralized cryptocurrency exchanges and other financial entities, has resulted in the suppression of Bitcoin’s price. This article delves into the factors contributing to this phenomenon, drawing parallels between equity-based and debt-based assets, and highlighting Wall Street’s treatment of Bitcoin as a debt-based asset.
Equity-Based Assets vs. Debt-Based Assets
Equity-based assets represent ownership or value and include stocks, real estate, and even cryptocurrencies like Bitcoin. In contrast, debt-based assets rely on fractional reserve banking, where only a fraction of deposited funds is retained as reserves, allowing the rest to be lent out as debt. The shift from an equity-based monetary system, where currency was backed by valuable assets like gold, to a debt-based system led to the creation of fiat currencies like the US dollar, backed by the government’s promise and legal declaration of its value.
Wall Street’s Suppression of Gold Price
To comprehend the suppression of Bitcoin’s price, it is crucial to understand Wall Street’s treatment of gold. In the gold market, there are more paper claims to gold than actual physical gold available, with banks and financial institutions controlling the majority of the underlying collateral. This artificial supply of gold allows Wall Street to manipulate the market and control the price.
Similarities in Bitcoin’s Treatment
Wall Street has applied similar tactics to Bitcoin, treating it as a debt-based asset rather than an equity-based one. Through centralized cryptocurrency exchanges, leverage, margin trading, futures trading, and the introduction of ETFs, traditional financial practices have been extended to Bitcoin. As a result, there are more paper claims to Bitcoin than the actual amount in circulation, creating an artificially inflated supply. Furthermore, the lack of transparency and oversight regarding the lending and re-lending of cryptocurrencies exacerbates this situation.
Real Demand versus Artificial Supply
With numerous investors holding claims to the same Bitcoin, the actual supply falls short of meeting the real demand. This imbalance between supply and demand is the primary reason for the suppression of Bitcoin’s price. Despite growing adoption and usage by individuals, businesses, and even countries, the price remains relatively low, with Bitcoin trading at levels far below what its increasing demand would suggest.
The situation becomes even more concerning when considering the possibility of a short squeeze. If Wall Street or big intermediaries have heavily shorted Bitcoin, expecting the price to drop, a surge in demand could force them to close their positions. This scenario, as witnessed with meme stocks like GameStop and AMC, could lead to a dramatic price increase, causing a scramble for collateral that may not be readily available.
The Importance of Self-Custody Wallets
To mitigate the risks associated with centralized exchanges and the artificial supply of Bitcoin, it is crucial for investors to transfer their crypto assets to self-custody wallets, also known as cold storage wallets. By holding their Bitcoin securely in their own wallets, investors maintain complete ownership and control over their assets, protecting them from the potential fallout of a short squeeze or market manipulation.
While the exponential growth of institutional investments in Bitcoin has played a crucial role in the mainstream adoption of cryptocurrencies, it has also led to the suppression of Bitcoin’s price. By treating Bitcoin as a debt-based asset and allowing for an artificially inflated supply, Wall Street and centralized exchanges have created a market situation where the actual demand for Bitcoin is not adequately met. To ensure the security and control of their investments, investors are encouraged to transfer their crypto assets to self-custody wallets.