March 06, 2024

Ferdinando Ametrano

Bitcoin: an unstoppable adoption

These days, everyone’s attention is fixated on the Bitcoin price records. While investors celebrate, we also witness the surprise of those who had previously dismissed Bitcoin, the disdain of skeptics, and the attempts to downplay its significance. Yet, amidst these reactions lie profound misunderstandings.

Jeffrey Greenbaum of Hogan Lovells is unequivocally mistaken in his assertion to CityWire that ”Italian investors in digital assets are young people investing 20 or 30 euros.” Contrary to this, the Bank of Italy indicates that 4.3% of families in the highest income quartile have ventured into cryptocurrencies, with 33% of them investing over 5 thousand euros and 11% over 30 thousand euros. Furthermore, the Organismo Agenti e Mediatori (Oam) reports that as of September 2023 1.5 million Italian investors held nearly 1.3 billion euros with authorized crypto intermediaries. Since then, these volumes have likely doubled, fueled by soaring prices.

However, the significance of the Bitcoin phenomenon is underscored by the authorization of ETFs in the United States on January 10th. As of March 5th, BlackRock and Fidelity have collectively amassed almost 19 billion dollars, breaking all previous ETF records and propelling Bitcoin prices to new highs. Some have proclaimed that ”Wall Street has normalized Bitcoin,” but given that Bitcoin itself hasn’t changed at all, it would be more accurate to say that ”Bitcoin has normalized Wall Street.”

Equally perplexing are Donato Masciandaro’s grievances in Il Sole 24 Ore. The economist compares Bitcoin to the tulip bubble, drawing a parallel between a historical episode lasting three months in 17th-century Holland and a phenomenon enduring fifteen years in today’s global economy, characterized by unparalleled market efficiency and information dissemination. Moreover, Masciandaro critiques Bitcoin’s role as money, a stance supported by naive anarcho-capitalists but debunked for over a decade. Bitcoin is not good transactional money, as evidenced by the infamous 2010 transaction involving 10 thousand Bitcoins for two pizzas, now worth over 600 million euros at current prices.

Nobody invests in Bitcoin expecting it to function as a reliable currency. Rather, Bitcoin is viewed as an investment asset, the digital counterpart of gold. For the first time, we have a digital artifact that’s transferable yet non-duplicable, thereby possessing scarcity unprecedented in the digital realm, which imbues Bitcoin with economic value. A growing segment of the market recognizes this value; just as physical gold played a pivotal role in history, Bitcoin, as its digital equivalent, with its secure and uncensorable transaction network, promises to revolutionize our digital civilization and the future of money and finance.

What the Internet has been for information, Bitcoin promises to be for the transmission of value. Despite those like Paul Krugman who failed to understand the Internet (”it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s”) and fail to understand Bitcoin as the Internet of value.

However, in the last week the most disconcerting pronouncement has been the one posted by Ulrich Bindseil and Jürgen Schaaf on the European Central Bank’s blog. Despite erroneously declaring Bitcoin’s failure in November 2022, they persist in reiterating baseless claims: Bitcoin is bad money (debunked above: it is gold, not money), a poor investment (despite being the best performing asset class of recent years), and prone to market manipulation (contrary to the SEC’s approval of ETFs). Finally, they claim Bitcoin is used by organized crime.

This last assertion is consistently refuted in the annual report by Chainalysis, a leading blockchain forensics company engaged by international investigation agencies. Crypto crime decreases yearly, primarily involving currencies other than Bitcoin, and predominantly consists of scams. These scams ensnare unsuspecting investors, left vulnerable due to regulatory restrictions preventing traditional supervised intermediaries from offering financial services in the crypto sector.

Fortunately, fraudulent actors like Sam Bankman-Fried’s FTX and Changpeng Zhao’s Binance have faced legal actions in the US, bolstering confidence in a sustainable growth devoid of scandal and fraud. European regulatory developments such as Mica regulation and the evolving tax framework, already clarified in Italy, further enhance confidence.

The impending Bitcoin halving in April fuels bullish expectations. While the next halving is quantitatively insignificant, historical patterns suggest behavioral dynamics in the market may validate these expectations. Moreover, even the CFA Institute Research Foundation recommends allocating 2.5% to Bitcoin in a diversified investment portfolio. Should the $112 trillion of globally managed assets heed this advice, Bitcoin’s market value would need to triple to accommodate this capital. In short, resistance is futile: Bitcoin adoption is unstoppable.

March 06, 2024

Ferdinando Ametrano

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