The final factor to monitor in order to gauge how much the institutionalization and growth of Bitcoin may progress relates to developments in the macro investment environment. As noted earlier in the paper, one of the reasons institutional investors are buying Bitcoin is to hold the asset as a hedge against inflation and currency devaluation. This argument focuses on the scarcity aspect of Bitcoin and knowing there is a finite supply of the currency, the totality of which will be in the market in just the next few years. In that sense, they are treating Bitcoin like they would treat gold or copper.
Inflation concerns are high because of the COVID-19-led quantitative easing policies adopted by central banks and governments and uncertainty about how quickly major economies will be able to recover. If the economic rebound exceeds expectations and the central banks and governments are able to scale back programs and begin to edge interest rates higher sooner than anticipated, such concerns may ease. Indeed, China posted positive economic growth in 2020 despite having been the epicenter of the COVID-19 outbreak and having been the first economy to mandate lockdowns.186
Beyond easing the case for an inflation hedge, signs that the central banks are winding down their support might lead to more interest from institutional investors in re-allocating their capital back to the traditional equity and bond markets in
expectation of more volatility and investment opportunity. Dampening institutional enthusiasm would remove a key source of support to Bitcoin and potentially the broader cryptocurrency ecosystem, thus pushing it back to its more speculative roots.
185 “2020 has been Chainlink’s Year. Here’s Why”, Adriana Hamacher, Decrypt, December 25, 2020.
186 “China Is the Only Major Economy to Report Economic Growth for 2020”, Jonathan Cheng, The Wall Street Journal, January 18, 2021.
The big question about crypto in general is what these other players are up to. My view is that is Bitcoin and Ethereum are the two dominant models where Bitcoin is digital gold and Ethereum is for application development, and I’m more excited about Ethereum. It's better suited for DeFi. We have this long-term view that while the number of blockchain
projects continues to expand, there will ultimately be consolidation in blockchains in the longer term.
– ERIC STONE, FLIPSIDE
There are a lot of issues, which is common with early
technology. Public blockchains are slow and expensive, but those are things that will hopefully be resolved in the next three years. It reminds me of the conversations around
public cloud in 2013. People at banks said they wouldn't use Amazon Cloud service because it's unsecure and slow, but things evolved and it improved.
– MICHAEL SHAULOV, FIREBLOCKS
Proponents of tokens and accounts have different methods, but all roads lead to the kind of money we need to support the digital economy. Always on, programmable, instant, hyper-connected, embedded and secured through digital proof of the parties involved in each transaction.
– TONY MCLAUGHLIN, EMERGING PAYMENTS AND BUSINESS DEVELOPMENT, TREASURY &
TRADE SOLUTIONS, CITI
Conclusion
The philosopher Schopenhauer once remarked that “All truth passes through three stages. First it is ridiculed. Second it is violently opposed. Third it is accepted as being self-evident.”187 Though this sentiment was expressed more than 150 years before the emergence of Bitcoin, the introduction and evolution of the
cryptocurrency illustrates this very human response to change.
The idea that a new payment system relying on a decentralized cryptographic approach to facilitate transactions in an extrajudicial manner might gain traction and challenge traditional payment rails seemed like a pipedream in the early days of its release. This gave way to denouncements and restrictions as governments, banks, and regulators sought to limit its growth. As recent events have shown, however, that resistance may now be melting away.
Large institutional investors and organizations are choosing to participate in and support Bitcoin. Regulators are beginning to lay the groundwork for the asset to potentially enter the mainstream. Governments themselves are being pressured and many are re-considering their own currency offerings. The vision of Bitcoin as a force that will transform the world may seem self-evident in just a few more years.
The fact this progression has occurred in just over a decade makes Bitcoin remarkable regardless of its future.
Throughout this journey, the perception of what makes Bitcoin unique continues to morph. Bitcoin is now many things. To some, it is a payment system based on new technology set to potentially drive a re-wiring of the entire payments landscape. To others it is a new currency that can store value in a unique way and marks a new model of issuance beyond the control of any one nation. Many focus on the limitations imposed on Bitcoin’s supply and liken it to digital gold, focusing on its value as an asset class. Those thinking about its future see the potential for Bitcoin to become a global facilitation currency helping to reduce the friction and complexity of cross-border trade.
What Bitcoin has undoubtedly become is the inspiration for a rapidly evolving blockchain-based economy. Its core innovations were the building blocks that launched this ecosystem and those innovations themselves are now being extended and levered in new ways that are remaking the world of commerce and finance. Bitcoin’s existence has helped create a new landscape that in turn has spawned a whole set of altcoins and created a new, decentralized cryptocurrency market.
All of these views about Bitcoin’s potential and how it influences and helps to inspire new business models emerging in the blockchain domain are what leads us to call it the North Star. Whether it maintains this position and how far the potential
transformation it has inspired extends are both unknowable at this time, but Bitcoin’s journey has clearly entered a new stage.
Our goal in this paper has been to help readers understand Bitcoin’s past, present, and possible future. Armed with a fuller understanding of what has driven Bitcoin’s growth and how it has spurred so much additional innovation and disruption should allow readers to better assess and determine their own view about Bitcoin’s value and understand how future news may facilitate additional growth or force a retrenchment and re-evaluation of its potential.
187 Arthur Schopenhauer, Brainy Quote.
For all these reasons, we conclude by noting that Bitcoin is at the tipping point of its existence and the path forward from here may have broad and widening
repercussions.
What is Bitcoin to You?
“I think Bitcoin a global leveling opportunity for everyone to participate in the financial ecosystem”
-James Stickland, Elwood Asset Management
“Bitcoin is the first global payment system that’s accessible to anyone in the world”
-Jonathan Levin, Chainalysis
"Bitcoin is digital gold, which is how it's viewed inside the Maker protocol“
-Rune Christensen, MakerDAO
“Bitcoin is the enabler of everything we've seen after Bitcoin“
-Itay Malinger, Curv
“I think Bitcoin is the next stop on the evolution of money and value”
-Michael Sonnenshein, Grayscale
“Bitcoin is proof that the way global governments and economic systems have treated money is no longer valid”
-Dave Balter, Flipside
"Bitcoin is an educator, and it challenges our existing understanding of what money is and what it could be”
-Juri Bulovic, Fidelity Center for Applied Technology
Digital Gold New Type of Payment System
Currency / Money
‘North Star of Blockchain Ecosystem