In 2020, bitcoin experienced a tremendous rise in interest from corporations, entrepreneurial personalities and institutional investors. Twitter’s Square Inc. acquired US$50 million in bitcoin for its capability of “economic empowerment”, software developer MicroStrategy purchased over US$1 billion of the crypto and established firms like MassMutual which acquired US$100 million of the digital currency in December. There are currently several adoption examples of the digital asset as this new wave of investors leads the currency into new heights of popularity and usage, but most under the same pretext; using bitcoin as a long-term hedge against financial crises and inflationary economies.
In this article, we’ll focus on the first aspect of the institutional mindset; the advantages of bitcoin as a long-term investment and its utilities for a financial legacy that can span 20, 40, 60 years into the future.
Bitcoin in a nutshell
Created in 2008 and first used in a financial transaction two years later, bitcoin is a digital currency developed as a store of value and incorruptible ledger of cryptographed transactions. It holds a decentralised property where no particular group or institution possesses control over it. That’s because bitcoin is based on the Blockchain, an unalterable network of information blocks that only operates through the shared connectivity of its users instead of a central database, where information is stored and managed by a company or institution. Bitcoin’s untampered code of usage also applies to its supply; currently at 18.5 million units, and a maximum cap of 21 million bitcoin will ultimately be available once mining reaches its limit.
Bitcoin’s disruptive technology allied with its easy access and deflationary properties has made the asset a source of tremendous price speculation from expert analysts, celebrity investors and financial personalities, especially during 2020 when the currency reached new heights of value and adoption. When thinking about bitcoin in the distant future, it’s easy to get attached to one or any price estimate, so let’s focus on what can be predicted about the crypto given its framework and recorded history.
A safe haven against crises
First proposed in a whitepaper released amidst the Global Financial Crisis, in October of 2008, bitcoin has an excellent background during periods of extreme economic turmoil in crises of the past decade. During the Cyprus crisis of 2012 and 2013, citizens and investors struggled to have direct access to cash and their assets, which led many to seek bitcoin as a safe haven from economic instability and institutional control. During the crisis and after Cyprus’ bailout to the EU and IMF, the crypto’s adoption skyrocketed as news spread over its advantages during times of financial uncertainty. The same conclusion occurred in Greece around 2015, at the peak of its ten-year financial crisis; turmoil of Greece leaving the EU, stocks plummeting and withdrawal limits on investors led bitcoin to spike in adoption amongst the greeks. Several other examples can be used, such as Venezuela’s hyperinflation collapse where the number of Venezuelan adopters of bitcoin multiplied by 188x during its peak inflation.
Which leads us to 2020, one of the most social, financial and even culturally uncertain years in recent history that was also the most proficient in multi-faceted bitcoin adoption since its conception. The constant economic instability throughout the globe brought by the Covid-19 pandemic caused nations, their institutions and investors to look into the digital asset as a hedge against such turbulence periods. There were also breakthroughs in policies related to cryptocurrencies. “Digital assets” were the centre point of discussion for the IMF’s last annual meeting, where Fed Chairman Jerome Powell discussed bitcoin and America’s potential plans for a national digital currency. Last December, Forbes had their first edition of “Cryptocurrency Awards”, where Powell was named “Person of the Year in Crypto”.
Frictionless storage, borderless transactions
It’s unlikely for an asset to be considered a safe haven against financial disruption if it is challenging to acquire or exchange, and bitcoin excels at precisely that. Often labelled as a digital version of gold, bitcoin holds a few similarities with the popular metal. Both possess high liquidity, the intrinsic value of its natural resources or technology, transparent accounts of storage and limited supply (although unknown how much gold there is left to mine). What mainly differentiates bitcoin from gold in value-transfer and everyday-life applications for a long-term legacy is its reliable practicality for storage and transactions.
Bitcoin can be stored in several different ways, with the main ones being exchanges, digital wallets, a computer’s hard drive and cold-storage flash drives. The technology has evolved to bring adopters with state-of-the-art security in the most practical way possible. At Zerocap, we provide clients with the most advanced wallet encryption through Multi-Party Computation. The seamless fluidity of bitcoin use allows the asset to be transferred with ease anywhere in the world with little hassle and no underlying fees when compared to other assets. Having bitcoin as a long-term store of value is an easy way to protect personal funds and guarantee a legacy of frictionless access to your investments. Add bitcoin fixed-income yields, and you have a safeguarded asset with multi-layered routes of appreciation.
A glimpse into the future
No one can precisely predict what the Bitcoin network and the currency will look like in the distant future, but current developments tell us a lot about where it’s heading and what it means for a financial legacy.
Throughout 2020, several countries and territories began establishing new frameworks to regulate a federal definition for the asset, with governments such as the United States and European Union recognising the benefits of the technology and displaying an interest in developing their own digital currencies, albeit centralised ones with many different properties such as China’s Digital Yuan. In Australia, a December 2020 survey conducted by the Independent Reserve Cryptocurrency Index (IRCI) showed that one in five Australian adults own bitcoin, with 88% of those interviewed being aware and interested in the asset.
Notorious professor and financial researcher John O. McGinnis recently published a paper for Harvard’s Journal of Law and Policy about bitcoin’s future. In a nutshell, the economist sees two ways to guarantee a long-lasting presence of bitcoin in society. The first is its acceptance amongst different governments as a new form of property, which occurred in key territories given past and recent developments of policies accomplished over the past decade. The second assurance regards how the global economy deals with financial crises where bitcoin becomes a rival in one of the most valuable tools for the States; their ability to run quantitative easing programs and add liquidity to the system. Given the amount of money printed in several nations during the Covid-19 crisis of last year, it’s safe to assume that this will continue to be used as a release valve to economic challenges.
What makes bitcoin a fantastic asset for a financial legacy lies far beyond the charts or price speculations from financial leaders. Bitcoin’s intangible scarcity, simple storage and incorruptible transactions make bitcoin an ideal currency to safeguard funds against the economic trials and changes that the future holds, whatever they might be. If the past decade indicates what the next few decades might look like, then it was a firm evidence that bitcoin is here to stay.