Market strategist Luke Gromen argued that the growing presence of cash-settled derivatives in the Bitcoin market could put downward pressure on $BTC’s long-term price performance. According to Gromen, the development of “digital credit” systems could become a significant factor preventing Bitcoin from reaching $1 million.
Gromen stated that Bitcoin investors should examine the “credit gold” system that began to develop in the gold market in London in the mid-1980s. The experienced analyst suggested that the formation of a similar financial structure around Bitcoin might not be coincidental, saying, “I think more Bitcoin investors should take the time to understand that if digital credit develops, $BTC might never reach $1 million. That might even be the goal of digital credit.”
After Gromen’s post received strong reactions from the cryptocurrency community, the analyst explained the reasoning behind his opinion in more detail. Stating that he recently logged into Coinbase to buy more Bitcoin, Gromen noted that compared to when he made his first $BTC purchase in 2013, the platform now offers a large number of Bitcoin derivatives with varying leverage levels.
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From Gromen’s perspective, the critical point is that a significant portion of these products are settled in cash, not Bitcoin. The analyst stated that Bitcoin’s peak-to-peak compound annual growth rate has declined significantly in the two market cycles since cash-settled Bitcoin derivatives began trading.
Highlighting the importance of cash settlement, Gromen argued that in such markets, the marginal price can be determined over time not by the physical supply and demand of Bitcoin, but by the actors with the greatest capacity to create money. According to Gromen, this actor is in most cases the fiat currency system that Bitcoin initially aimed to provide an alternative to.
Gromen, who stated that he has owned Bitcoin since 2013 and still holds $BTC, said that the decline in Bitcoin’s peak-to-peak return rates over the past eight years seriously concerns him.
*This is not investment advice.
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