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Bitcoin’s next big move

From store of value to global payments system – Citibank.
Bitcoin was originally formed as a new system of payment immune to political interference. A new report suggests that vision is now unfolding before our eyes. Image: Luke MacGregor, Bloomberg

Governments are understandably suspicious of bitcoin, which has shown itself relatively immune to censorship and even outright banning.

A new report by US banking giant Citibank says despite their most ardent wishes “it might prove to be almost impossible for a government to shut down access to bitcoin and other cryptocurrencies or prevent its ownership or usage without what would effectively amount to a shutdown of the global Internet”.

That’s a huge tick in favour of bitcoin as a new form of international money.

Another is its ability to protect purchasing power, something that has been adequately demonstrated by its almost 200% compound annual increase in price over 12 years.

It took some years, but a large and growing corps of businesses now accept bitcoin as payment. According to the Citi report, entitled Bitcoin: At the Tipping Point, “a 2020 survey by HSB reveals that 36% of small-medium businesses in the US accept bitcoin”.

In October last year, PayPal announced that it would allow US account holders to buy, sell and hold cryptocurrencies, and to shop with cryptos at more than 26 million merchants.

Read: SA firms start investing their cash in bitcoin

There are now about 12 000 bitcoin ATMs around the world, allowing customers to buy bitcoin using cash or a debit card, and to sell bitcoin for cash.

Boom in Africa

There’s also a quiet bitcoin boom unfolding in Africa, says Citi, driven by payments from small businesses as well as remittances sent home from migrant workers.

Monthly cryptocurrency transfers to and from Africa of under $10 000 – typically made by individuals and small businesses – jumped more than 55% to reach $316 million in June 2020 according to Chainalysis. Facilitating all of this was a more than 55% jump in monthly bitcoin trading volumes of all market participants in South Africa and Nigeria to more than $536 million in August 2020.

“Many case studies have been done illustrating how Africa has leapfrogged in the build-out of its financial ecosystem, foregoing the establishment of a robust banking industry and instead jumping quickly to mobile digital wallets,” says the report.

“Tech-savvy residents are used to digital cash, making the region particularly well-positioned to consider bitcoin and other cryptocurrencies.

Difficulties obtaining US dollars, the de facto currency of global trade, are exacerbated in the region due to weak local currencies and complex bureaucracy that complicates money transfers. These issues helped accelerate the push to explore bitcoin.”

African merchants highlight how bitcoin is helping to make their businesses more nimble and profitable and allowing African natives working in places like Europe and North America to hang on to more of the earnings they send home. Small cryptocurrency transfers in June 2020 alone rose to 120 000 in June 2020 (+55% year-over-year) worth nearly $56 million (+50% year-over year).

As Nigeria was hit by Covid-19 and falling oil revenues, its central bank shut crypto companies’ access to banking services. The naira was twice devalued in 2020, forcing importers to pay more for increasingly scarce US dollars.

“All of these developments highlight how Bitcoin as a payment option is beginning to move toward the mainstream,” says Citi.

“Growing use from both developed nations and emerging economies are working to cement bitcoin’s reputation as a store of value and making its censorship-resistant attributes increasingly important.”

Read: Cryptocurrency banking potential in Africa

Bitcoin is turning out to be a global levelling opportunity, says James Stickland of Elwood Asset Management, and emerging countries have been driving adoption of digital currency out of necessity as a way of cleaning historical challenges with cash.

Another development is the migration by crypto exchanges into bank-like services, such as lending and borrowing, using cryptos as collateral. Unlike stock exchanges where trading equities requires an intermediary, these crypto exchanges offer consumers direct access to the market, 24/7. Institutions and fund managers faced with low or negative interest yields on bonds are eyeing the crypto market as a potential source of returns, says Citi.

What makes the bitcoin network unique is that it is the first truly global payment system, says Citi.

“It knows no borders, never closes, is not owned by anyone, and is accessible to everyone,” it adds.

“Unlike traditional payment systems that exist on private severs, the bitcoin blockchain is distributed across thousands of machines all over the world. Anyone can maintain their own copy of the shared ledger.”

Part of bitcoin’s appeal is its censorship resistance: the idea that nobody can be denied access for any reason. This feature makes the bitcoin payment network the most universally accessible one on earth – for better and for worse.

Financial inclusion

Traditional payment systems such as e-money, credit cards or automated clearing houses (ACH) are built on the commercial banking system and are only available to people who can pass the financial industry’s stringent Know Your Client (KYC) requirements. Such systems lock out significant portions of the global population, particularly in developing countries. This lack of financial inclusion is increasingly seen as a social problem, especially now that digitisation is diminishing the role of cash everywhere.

“The bitcoin payment system is uniquely resilient. Distribution makes it difficult for any one corporation or government to interfere with its operation, and censorship resistance makes it practically impossible to lock out any one group of people.

“The network is also uniquely accurate.

“Put together, all of these properties make the bitcoin network a true offspring of the digital era. There is no scheduled down time, no ‘opens’ or ‘closes’, and no painstaking reconciliation. A transaction across the globe happens as seamlessly as one across the room, for the simple reason that as far as the blockchain is concerned, each is just a ledger entry: a debit and a credit.”

Tackling crime

The bitcoin ledger has already been used to quickly solve large-scale crimes and identify criminal activity – one explanation as to why illicit activity is currently believed to make up less than 1% of transaction activity, a stark contrast to the 2% to 5% of global GDP caught up in money laundering alone, says the report.

Government reactions

Some governments did react as bitcoin rose to ever higher highs in 2017/18. Several governments currently have an outright ban on bitcoin, including Algeria, Ecuador, Egypt, Nepal, and Pakistan. Others, including Saudi Arabia and Taiwan, have introduced a partial ban, typically blocking financial institutions from dealing in the cryptocurrency or facilitating bitcoin transactions.

The next evolution of the global ecommerce trend

Fifteen years ago, ecommerce was a happy promise of things to come, but few retailers paid much attention. Now it has come to dominate certain segments of the market such as book sales and software.

The same theme is playing out in in the crypto sphere. “We will be living in a hybrid world of centralised and decentralised systems in the next five to 10 years,” says Bin Ren of Elwood Asset Management.

Read: Six bitcoin will buy you a R1.4m house

Nathaniel Luz, head of crypto company Dash Nigeria, says we are entering an era where potentially hundreds of thousands of cryptocurrencies exist alongside state-issued currencies like the naira and rand. This is why central banks are advancing plans to introduce digital versions of their currencies called Central Bank Digital Currencies, or CBDCs.

“In the developing world, digital currencies are a springboard to financial inclusion,” says Michael Sonnenshein, CEO at Grayscale Investments, the world’s largest digital currency asset manager.

“Look at the advent of cell phones as a technology that leapfrogged traditional landlines. It’s similar to digital currencies since half of the world’s adult population don’t have access to financial services. Digital currencies like bitcoin could help leapfrog traditional banking systems.”

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Nope, this is wishful thinking. Literally anything can be a store of value over the short term, such as tulip bulbs. You could buy a nice house in Amsterdam in the 1700s with one single bulb. Today, a packet of 10 bulbs won’t even buy you a hamburger in Amsterdam.

Like tulips, so-called cryptocurrencies (they aren’t) are a very poor store of value. In 2017, bitcoin for example crashed, and, in spite of what the crypto bulls think, the next crash is coming. Speculation does that, whether it be in tulips or in bitcoin.

Furthermore, there are damning technical reasons why blockchain would be impractical as a real, widespread electronic currency. Go read this, if not to educate yourself, then for the sake of your kids’ inheritance. It is admittedly pretty boring reading, but if you insisting on gambling their inheritance away, at least know what a poor bet you are actually making:

https://kw.wharton.upenn.edu/kwfellows/files/2018/06/2018-08-30-Bitcoin-Student-Series.pdf

I see no evidence of anything on cryptocurrency preventing price manipulation.

And it seems that price manipulation has happened before:
https://www.cnbc.com/amp/2019/11/04/study-single-anonymous-market-manipulator-pushed-bitcoin-to-20000.html

There is also more than one way to manipulate a market price in an unregulated environment.

@Etienne, I have a challenge for you. I am prepared to bet $10,000 that bitcoin will be in excess of $200,000 in 5 years’time.

You may be interested to know that the tulip bubble rise and fall occured in under a year. Bitcoin is in its 12th year and growing. Nevermind facts.

But I am dead serious, we could lock up $10,000 in a smart contract which holds it in escrow (or with a lawyer if you like). I’ve got the cash available and would love the opportunity to prove a naysayer wrong.

The only question is whether you would still use the tulip line of reasoning when bitcoin is in its 17th year?

“Monthly cryptocurrency transfers to and from Africa of under $10 000 – typically made by individuals and small businesses – jumped more than 55% to reach $316 million”. You not even reading the article nor are you involved in business in Africa. What are you even doing here? Empty, worthless comments.

“Nor are you involved in business in Africa.” Well, if you exclude Uganda, Ethiopia, Tanzania, Lesotho, Zambia, Malawi and Botswana, not to mention SA, you are probably right. Not.

As for the $316m you’re so proud of, hundreds of billions of ordinary currency flow into and out of Africa, and, let me guess, much of that $316m was due to criminal activity, the likes of Cheri and her cronies being responsible.

But hey, it’s your children’s money and your “company”, “Executive.” See ya begging at the traffic lights….

Etienne. The article/PDF you referred to was written in August 2018. Virtually all of the issues raised in the article has been dispelled.

The criminal activity arguments is so 2015 … move on guys… bitcoin is developing and progressing each year

Without a link it is hard to believe you. Also you can not prevent collusion as what happened in the 1920’s on the New York Stock Exchange in an unregulated space…

Just because an article is old does not mean that the contents is irrelevant – hence you need to show your homework.

Was BitCoin not developed initially as a digital means of conducting financial transactions? So how is it becoming something that it was intended be in the first place?

Seems like no one knows what it is exactly, except perhaps a bandwagon to jump on.

It’s becoming very draining to have Moneyweb plugging Bitcoin and cryptocurrency more than anything else on their website at the moment – several times every day.

Cryptocurrency really is just a solution looking for a problem and is a problem within itself.

This plugging is definitely not helping the Moneyweb reputation for relevant finance news.

Moneyweb and Ciaran are shills for some bitcoin outfit, I wonder how many satoshis they get per article, it is so obvious that someone is using Moneyweb as their megaphone to hype crypto. Buy and hype, I posted a comment about this exact thing a few days back.

Yes please MW -top punting bitcoin like crazy. Boring speculation by wishful people about some ponzi scheme. .

Bitcoin appears to be toying with a Primary degree correction..
See the Bitcoin post at sharechat (.co .za)

Again with all the negative comments against crypto, here is a reposting of a comment of mine from a former Moneyweb article on Bitcoin.

What about the technology behind cryptocurrency. Would the technology not be considered an asset of increasing value because of the many potential applications being implemented now, although all of it still fairly in the infancy stage, plus the vast number of potential applications being increasingly discovered on an ongoing basis, to solve particular problems or offering potential solutions to how society can function more effectively. Why can’t these applications in the form of computing power and digital solutions be not of value to society, hence be considered assets with which crypto currency, a component of this same technology be also backed by – is an asset not anything that is valuable or offers some form of value to society.

Whether we like it or not, struggling to wrap our heads around it or not, comparing it to traditional assets or not, the fact is the migration toward digital payments and digital representations of value continues to accelerate, driven by the Covid-19 pandemic and the increased interest in digital currencies from countries, central banks, institutions and consumers. Furthermore, like any new invention and the initial problems experienced at the onset, because the invention is still in the process of being perfected, also accompanied by suspicion whether the invention has any potential value as a use case or not, likewise cryptocurrencies are volatile because they are still in their infancy, round about a decade old, very far from being mature, obviously with anything new or a new way of doing something there is going to be lots of hiccups, and with those hiccups will come tremendous fluctuations (volatility) with the trust element, which if there is a potential use case, nonetheless would still affect value to varying degrees, until things mature and settle down which comes with time. So at this point in the lifespan of cryptocurrency and its fairly distinguishable but inseparable blockchain technology, it’s still too early to form any concrete conclusions, although I agree with the stance many are taking that cryptocurrency is still a supposed asset of speculation. Time will tell. Let’s not jump the gun here with hasty conclusions, as has been done in the past against technologies that are a normal part of our lives today.

Fair Comment,
Nothing in recent history has given a free man the opportunity to be financially independent than that of Bitcoin.

Whilst I dislike the majority of Crypto Currencies because the act and behave in the same way as central banker together with politicians which corrupt their value.

Bitcoin is something different, special and rather unique. It does not have an owner yet every transaction has been self audited an verified without the need for oversight authority and since the quantities are limited the value will never drop 1 BTC will be equal to 1 BTC in 50 years from now, unlike the US Dollar which has lost over 97% of its value in the same period.

For those of us who believe its worth, we will see our value maintained.

Just to be clear Bitcoin will never gain value but rather fiat currencies loose value which push the price of BTC higher.

The price of BTC will go up to $400,000.00 to $800,000.00 in the long run meaning that the 20 Million BTC coins will be worth a total of between US$8 Trillion and US$16 Trillion.

You really think central bankers and government officials will allow a serious challenge to their monopoly on currency? The minute people opt out of the FIAT system and opt to use crypto (to avoid paying VAT etc.), the government will simply outlaw it for transactions. I would be happy to use it as a currency in the grey economy – but most big companies would not. The risk of government regulation is too great. Bitcoin will always exist in some form – but the value will be severely hit if governments stop the transactional use of it (or block the onramping/offramping from the traditional banks to the crypto exchanges – easily done and currently being done in other countries).

The other issue is “Tether” – an unregulated Ponzi scheme masquerading as a stable-coin that is inflating the price of Bitcoin. Look into it. Once the Tether issue is shaken out, and government has had their regulation-tantrum to prevent people freely transacting in a parallel currency, then it might be worth looking into.

@RSA liberty, no that’s not what I am saying. In fact I am saying the exact opposite, crypto currencies other than Bitcoin have a development team with a stake in the game and therefore they act in the same way as a fiat central bank. Goverment will see this as a threat and rightfully so, fiat it self means power from authority. So yes to your second point I completely agree.

I view Bitcoin as piece of timeless art work, a once in a lifetime master piece that cannot be replicated.

Furthermore I think that the IMF will have to deal with the global debt problem of $280 Trillion, they will probably created a new standard trading Crypto Coin and that will benchmark the world’s currencies.

Not quite sure what you mean by “the migration towards digital payments and digital representations of value.”

We’ve been there for a long time already. Most money these days is, in fact, not physical notes and coins, but digital. As for digital payments, these have been around for ages. Visa and Mastercard process thousands of digital transactions per second. There is certainly no resistance on my behalf to all this – it’s just easier to order stuff on Takealot and not have to lug bags of cash to the bank every month to pay my debt.

You probably meant cryptocurrency payments and crypto as a store of value. Crypto payments have been been an epic fail. You can the number of merchants in SA accepting crypto on one page and still have space left over. There are fundamental technological reasons why crypto won’t – and cannot – replace Mastercard or Visa. Go read my PDF link I posted in another comment above for a detailed discussion why not. As for a store of value – bitcoin is exposed to ridiculous swings in value, which makes it impossible to take seriously as a store of value.

The fact that you think digital payments and transactions, used by Swift or Visa for example is virtually no different to the newer incoming cryptocurrency payments and transactions, means you haven’t really grasp the underlying dynamic executable code or programmable technology that drives cryptocurrency and which cryptocurrency is embedded in, which is world’s apart from the static data we see in our bank accounts on a computer screen used as digital versions of traditional fiat currencies that you are correct in saying has been in use for years now – but it’s not the same thing. If you think so you are gravely mistaken and I do not have the time nor the space here to explain the technical details of cryptocurrency technology and how it is absolutely different from the static data of traditionak digital versions of our fiat currencies. It is this vast technological difference and it’s vast potential for future application that is causing, for instance, China, among other countries, to move away from its traditional cash fiat currency, the Yuan, and it’s corresponding tradional digital form to the newer crypto version, known as a CBDC, Central Bank Digital Currency. The Chinese, as well as other countries, would not be spending huge sums of money, billions of dollars, to migrate from one digital form to another if it was the same thing? Now the issue of whether cryptocurrencies are in danger of government intervention and other risks that might pose a threat to their continuation is a completely different matter altogether, a vast subject for debate some other time.

BTC’s transactional cost will go through the roof once used for smaller transactions; there simply isn’t enough processing power to validate small transactions at a reasonable cost.
ETH is far better positioned to fulfill the role as a transactional currency.
BTC will have to keep on beating the digital gold drum…..

Bitcoin is way too volatile, you can’t have 10-20% variations in price between one day and the next. How can you ever buy anything if you have to go through that casino first.

For long term traceable results a Crypto ETF is the way to go….problem solved!

End of comments.

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