Many traditional investors still speak to me of the fear of Bitcoin and other cryptocurrencies being banned or outlawed by governments. My previous post includes a discussion between Raoul Pal and Robert Kiyosaki, that establishes the confidence that Bitcoin and cryptocurrency are here to stay.
Back when I sold internet and email connections during the early days of my career, many organisation were skeptical and reluctant to network their computers. Some even had two ethernet wires, one for the internet, and the other for internal network. There were times when the internet was ‘down’ due to a ship anchoring on a cable! How far have we progressed with the World Wide Web in 20 years!
The network effect is a powerful paradigm which shifts human behaviour. We’ve seen Google, Facebook, Youtube and Netflix growing exponentially due to this. Imagine the implication to decentralised currency when it reaches mass adoption! Bitcoin is only now entering the early adoption phase, with merely 5 million active wallets in the market. Analysis of adoption can be further explained by the famous bell curve and cumulative, to represent the total adoptive population at a given time, which is the S-curve of Adoption.
Relating to the above, the Gartner hype cycle clearly shows the decreasing timescale for technology adoption over time. The Web took only 7 years compared to the black and white television which took 26! Tech adoption which begins with a burst of enthusiasm, sees the price bid up by market participants who are “reachable” in that iteration. The earliest buyers in a Gartner hype cycle typically have a strong conviction about the transformative nature of the technology they are investing in. Once the market reaches a crescendo of enthusiasm, the buying becomes dominated by speculators more interested in quick profits than the underlying technology. Bitcoin is fast reaching this stage. It has proven its resilience, despite crashing 5 times during its 10 year existence, and has continued to perform well against the USD. The graph is very similar to gold, though it took 43 years to get to there.
Now that we’ve covered the growth and adoption, the next one will be the threats from the Governments and the Fiat banking system. China is currently the largest Bitcoin miner in the world, though it has banned Crypto for their citizens and are already in the process of launching a centralised Digital Yuan. India too is discussing the ban of Crypto, whilst Russia has taken a more pragmatic approach. Starting January2021, cryptocurrencies will be allowed in the country, though they will not be allowed to be used in exchange for any goods or services in the domestic market. The US however risks the greatest downside to its geopolitical position if Bitcoin were to supplant the dollar as the world’s reserve currency. Many countries which challenged the USD have fallen over the years, however stopping a decentralised currency is not going to be easy. Crypto also challenged Wall Street and the large institutions for the first time, as this was an asset which was owned mostly by the common man, to which they are now playing catch-up. The more they drive the markets, the more the general public who owns it will benefit.
With the large public traded companies investing in Crypto to their balance sheets, it is going to be increasingly difficult to ban crypto, especially for the US, though they could regulate the exchanges as an attempt to control the flows, and introduce more ways to monitor the movement. Below are some figures which should boost your confidence in the longevity of Cryptocurrency.
MicroStrategy, a prominent business analytics platform, has adopted Bitcoin as its primary reserve asset early this year. In February 2021, it continued its Bitcoin buying spree and now holds 71,079 BTC in reserve, equivalent to over U$3 billion!
Galaxy Digital Holdings, a crypto focused merchant bank holds 16,402 BTC which is over U$ 750 million at present prices.
Grayscale Investments is undoubtedly one of the biggest names in the Bitcoin space, and by far the largest Bitcoin portfolio of any institutional investment platform, with over $30 billion in BTC currently under management in the Grayscale Bitcoin Trust. In total, Grayscale Investments now hold more than 3% of the overall Bitcoin supply, according to bitcointreasuries.org.
Last but not least, the Mayor of Miami, Francis Suarez has been vocal about adding Bitcoin to his city’s balance sheet, a move that will certainly rally others to follow suit.
Bitcoin is probably the purest example of “speculative adoption” that humanity has seen to date. With the above holdings of Bitcoins alone, and the implications of blockchain based services, do you think that Crypto currency can be banned in the world? To quote Erik Finman, a 19 year old bitcoin millionaire who owns 400+ bitcoins, “Deep down, everybody knows cryptocurrencies are the future. Even the bankers and Wall Street know it,” (via Twitter). “The only debate is how long until it completely takes over.”