Having just finished a course on crypto currency led by Anthony Pomliano, I met a number of Bitcoin maximalists i.e. folks who believe in Bitcoin’s success more than anything.
While I plan to write down some thoughts about the course soon I thought this is a good time to talk about what I’ve learnt about the utility of Bitcoin.
- Emerging Market Reserve Currency — El Salvador has adopted Bitcoin as legal tender and there are a host of other emerging market economies which are considering the same. Countries who’s own currencies are struggling to retain value and have their citizens relying on USD or remittance payments (with high fees) are seriously looking at Bitcoin as a way to decrease the large numbers of unbanked citizens and reduce costs. It makes sense for some emerging market countries to move away from USD as their reserve currency given they have no control over its supply or interest rates — Bitcoin’s supply is fixed and it is easily available over your phone or computer without the need for any Bank.
- Remittance payments — If you look into cross border remittance payments you’ll see it is an industry fully of intermediaries taking cuts on moving value from one country to another. Fees can be as high as 25% to transfer money across borders. The most common example is a worker from India working in the United Arab Emirates earning in Dirham’s and transferring it back into Indian Rupees for their families back home. Not only is the payment network highly inefficient (it can take days for final settlement), it is very costly. Bitcoin and in particular the lightening network (it’s layer 2 solution) allows one to move value frighteningly fast and at low cost across borders without the need for multiple intermediaries.
- Settlement network for FIAT — Bitcoin’s blockchain technology is actually the world’s first decentralised payment network. There are companies who are creating solutions to leverage the network to settle cross border FIAT payments. This would allow you to send USD from New York to settle in EUR in Paris instantaneously via the Bitcoin network. Effectively these companies are converting your USD value into Bitcoin before sending it over the Bitcoin network and swapping the value back into EUR.
- Reserve currency for corporations — It’s no secret that the Federal Reserve are busy printing the most amount of USD the world has ever seen which is devaluing the currency in real terms. This leads to a problem for corporations who have large amounts of cash reserves. Leaving your reserves in cash while inflation is above 7% and interest rates are low is reducing your cash pile for any future capital allocation and may one day be seen as irresponsible. Famously, NYDIG founder Ross Stephens has said his company have moved all of their cash reserves into Bitcoin (minus what they need for month to month overheads in FIAT).
- Seizure resistant asset — All you need to access your Bitcoin anywhere in the world is your seed phrase to whatever wallet you are using; this is usually a set of 24 words. There are lots of people using various memorisation strategies to remember these rather them keep them written down. Given Bitcoin is held completely digitally and can be considered a bearer asset by the owner who has the digital key, we can call it a seizure resistant asset. There is no amount of physical force or legal coercion that can transfer Bitcoin from one party to another without the corresponding private keys. Authorities and bad actors can resort to physical threats, blackmail and other forms of coercion with no guarantee.
- Speculative asset — probably what Bitcoin is most well known for is its utility as a speculative asset. Between those that HODL or trade more short term, Bitcoin has remained to keep value over the last 13 years. It has been described as digital gold because it is scarce, digital and thought of as an inflation hedge because of its low inflation schedule (roughly 2% p.a.) and limited supply (21 million coins).
Clearly there are quite a few here use cases here, all of which have their own real world equivalents like USD, Gold, Visa and Pesos. I would think if Bitcoin can continue to grow in market capitalisation, its volatility will decrease and more institutional investors and nation states will climb on board. Ultimately it cannot be stopped, but needs a good amount of utility, adoption and a favourable regulatory environment to thrive.