Key Takeaways:
- Countries may add Bitcoin to national reserves in 2025, boosting crypto market growth.
- Liquidity and inflation expectations remain key macro drivers for BTC’s performance.
- Institutional adoption continues reshaping BTC’s financial landscape.
In a bold prediction, Fidelity Digital Assets anticipates that countries may integrate Bitcoin into their national strategic reserves by 2025, marking a pivotal shift in the global financial landscape. This is because of the expectations on how BTC would perform in contrast to other traditional assets, such as gold, during economic turmoil.
Because most of them have still not curtailed inflationary pressures amidst challenges to their respective economy’s liquidity, it has made them begin to consider decentralization and BTC’s supply caps increasingly attractive. Fidelity also cited growing, significant macro factors, such as inflation expectations and monetary policies, that drive Bitcoin’s market movements.
The pivot by the Federal Reserve into rate cuts and increased liquidity injections have been a high signal for digital assets. Ongoing fiscal deficits and “sticky” inflation also tend to point to BiTC acting as a hedge, much like gold, against instability in the broader economy.
Bitcoin’s Role Amid Stagflation Concerns
What probably was an intriguing question that seemed to be lying behind the scenes, though stated by the report: how will BTC behave if an economy eventually experiences stagflation? Traditional assets classically performed poorly amidst high inflation in flat economic conditions, or stagflation.
Although Bitcoin has not gone through such a phase, one might look at the example of gold during the 1970s. Gold fared well during the inflationary wave in the second wave, with Bitcoin following suit if fiscal and monetary policies continue to steer towards liquidity rather than austerity.
Fidelity does note, however, that BTC is likely to face headwinds if central banks pivot to fighting inflation with aggressive fiscal tightening. Given current fiscal conditions marked by structural deficits, such fiscal tightening is unlikely.
Institutional Adoption Reshapes Bitcoin’s Ecosystem
In 2024, BTC has seen a dramatic change in the type of investors it attracts. Through spot Bitcoin ETPs, institutional adoption has made access to the cryptocurrency easier and allows more traditional money to flow in, taking the total amount of BTC held in these products over one million-5% of the total supply.
This institutional turn has also altered Bitcoin mining economics: the falling base-layer transaction fees in combination with the halving event set for April 2024 strained miners. However, according to Fidelity, long-term sustainability depends on efficient mining and third-party custody services, where countries with low energy costs are in a good position.
In this area, going forward, Fidelity does believe the scaling solution developments for Bitcoin to continue-either through incremental enhancements on the development of the Lightning Network or emergent Layer 2 protocols-which allow the efficiency in processing transactions while at the same time considering the long-term security of the network.
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