institutions

Michael Saylor Lists 10 Things For Bitcoin To Become A Stronger Asset

20/06/2022 by Idelto Editor

In an interview with Bloomberg, Michael Saylor detailed 10 things that needs to happen over the next decade for bitcoin to become a stronger asset for institutions.

Michael Saylor recently appeared in an interview with Bloomberg to discuss bitcoin and regulation.
The CEO of MicroStrategy explained he believes bitcoin has 10 things it needs to become a stronger asset.
Saylor elaborated on his company’s bitcoin strategy and its 10-year horizon and plans to acquire more bitcoin.

Michael Saylor, CEO of the software analytics and pro-bitcoin company MicroStrategy, recently appeared in an interview with Bloomberg to discuss 10 steps he believes will make bitcoin a stronger asset.

“There’s about 10 things that have to happen over the next decade to make it [bitcoin] a better asset, and we kind of know what those 10 things are,” Saylor stated in the interview.

The first on the CEO’s list of issues to be addressed is the absence of a no wash-trading rule, allowing traders to harvest loss and gains in a way that cannot happen with traditional equities markets.

Then, Saylor mentioned the issues with the 520 unregistered and unregulated crypto exchanges offering 20x leverage, which often leads to unprotected investors taking massive losses.

Next, the 19,000 cryptocurrencies being cross-collateralized and associated with bitcoin currently hold bitcoin back by comparing it to badly managed, unregistered securities.

Moreover, the issue becomes worse as these securities are glorified by the next issue at hand, “wildcat banks,” which enable gammified practices offering unsustainable yield, such as was seen with the fall of the Terra ecosystem.

Not least of all, Saylor listed ignorance and fear of the asset class, as a lack of technical know-how still terrifies many, as does media coverage telling of the many supposed deaths of bitcoin.

However, the fear and uncertainty is not just for bitcoin as Saylor went on to explain that we currently do not have a real stablecoin, which he believes will be a major boon for the ecosystem once one is fully regulated and approved.

Then, the CEO closed his list noting the absence of a spot exchange-traded fund (ETF), which would allow institutions to interact with the asset of bitcoin without needing to touch it themselves.

Finally, the three remaining points that need to be improved on in the bitcoin ecosystem revolve around the lack of regulatory guidance and support institutions currently must overcome. These points include lack of insurance, as well as guidance in becoming involved with the space.

Prior to revealing his list of improvements that will launch bitcoin into its next bull-cycle, Saylor spent much of the interview justifying the bitcoin strategy of MicroStrategy during this recent downturn.

“We did a lot of backtesting and I’ve gone back and looked at the numbers,” Saylor explained. “On August 10, 2020 when we announced our $250 million bitcoin buy, since then, bitcoin is up 72%.”

He went on to compare it to some traditional assets over the same time period including: the NASDAQ (-2%) , gold (-9%), S&P 500 (+9%), and single-family homes (+26%).

“The bottom line is that the bitcoin strategy is 10x better than any other alternative,” Saylor concluded. “So, no. I don’t regret it.”

Why Bitcoin Works For Latin America

04/05/2022 by Idelto Editor

The trustless nature of Bitcoin allows tremendous societal growth and development in places with low trust in the government and institutions.

With El Salvador’s recent transition of making bitcoin legal tender, people are beginning to take the cryptocurrency more seriously. One important consideration about President Nayib Bukele’s incorporation of Bitcoin into the country is the ability to solve numerous issues unique to Latin American economies and markets, namely, the issue of trust. While Bitcoin’s usefulness as a technology and investment vehicle is clear to market participants in the United States and other English-speaking economies, Bitcoin has special relevance to the people of Latin America. This is due to numerous social, cultural and historical precedents, not necessarily shared or fully understood by those outside of the region.

Understanding these topics and their implications for investment strategies is crucial for anyone looking for asymmetric advantage among English-speaking investors. This is simply because these elements are not fully understood or written about outside of Latin America (or even in languages other than Spanish, period). Indeed, many of these concepts are taken for granted by those who live there, thus not even making them newsworthy. This is inside information the average American is lacking, information which makes Bitcoin a smart decision for anyone betting on the future of Latin America.

Without a doubt, Latin America is one of the final frontiers of serious economic development left in the world, and it’s attracting money fast. Atlantico reported an “$18.6 billion investment into the region through the end of 2021, a staggering 250% increase in investments when compared to $5.3 billion deployed in 2020.” Those looking for outsized investment opportunities have flocked to developing economies and stock markets for decades, but the stage is set for advanced growth in this part of the world now more than ever.

Bitcoin offers unique advantages over foreign stock portfolios for several reasons. One advantage is that bitcoin is sound, unconfiscatable money that acts more like a bearer asset than a market fund or stock portfolio. Indeed, bitcoin is currently outgrowing the phrase “cryptocurrency” with its ever-growing functionality, incorporating benefits that resemble stocks, currency and bearer assets like gold all at the same time. It is quickly becoming its own unique asset class. There is not one, centralized authority that can control, stop, confiscate or inflate bitcoin. Instead, the system is distributed among millions of participants across the Earth, making it “trustless.”

A “Trustless” System Is The Perfect Solution For Low-Trust Societies

An excellent resource on societal differences in trust is Erin Meyer’s “The Culture Map” (a must-read for anyone doing cross-cultural business). As an international business consultant, Meyer points out important differences between Latin American and United States–based firms that go well beyond corporate culture; they go straight to the core of interpersonal relations.

Meyer describes how trust between business associates differs dramatically from one culture to another. She outlines the difference between “cognitive trust” and “affective trust:”

“Cognitive trust is based on the confidence you feel in another person’s accomplishments, skills and reliability. This is trust that comes from the head. It is often built through business interactions: We work together, you do your work well and you demonstrate through the work that you are reliable, pleasant, consistent, intelligent and transparent. Result: I trust you.

“Affective trust, on the other hand, arises from feelings of emotional closeness, empathy or friendship. This type of trust comes from the heart. We laugh together, relax together, and see each other at a personal level, so that I feel affection or empathy for you and sense that you feel the same for me. Result: I trust you.”

Countries in Latin American function much more on an “affective trust” paradigm. Meyer explains that because of very low faith in institutions and the legal system, residents of these societies need a sense of personal trust in their associates before working together. In comparison to the lawsuit-happy United States, many Latin Americans have good reason to believe that if they are jilted in a deal, there will be no legal recourse to get their money back. As such, personal references and bonding are important in a way that the average American just doesn’t really understand. In fact, this is the opposite of the U.S., where “business is business.” In the words of Meyer, in lower-trust societies, “Business is personal.”

As a result, this obviously creates a slowdown in many processes. Add this to Latin America’s stunning record of central bank hyperinflations and widespread political corruption and you would be a lot slower to trust too. Bitcoin is important in Latin America because it takes large institutions, governments, powerful corporations and central banks out of the picture and allows direct, instant, peer-to-peer transactions between individuals and businesses alike.

Bitcoin Removes The Trust Factor Entirely

The implications for this are huge. There’s a reason that Bukele — president of a country with hyperinflation so severe that they just gave up on having their own money — has instituted bitcoin as national currency. It solves the trust factor that Latin Americans know so well, of all their life savings becoming worthless in a matter of months. Yes, Bitcoin has volatility, but no volatility so extreme as that of the Venezuelan bolivar, the Argentine peso, the Mexican peso or indeed, the Salvadoran colón over the past few decades. In a volatile environment, people seek out solutions that deprioritize trust in outside institutions and maximize trust in trusted personal transactions. With Bitcoin, there is no middleman, government or otherwise, to get in the way of said transaction.

Just imagine when smart contracts go live in earnest on the Liquid network, and you will see for the first time an enforcement of contracts that is only enabled in the U.S. by our trusted court and police systems. These will encourage economic development and opportunity that has been stifled for many years in Latin America. These are guaranteed contracts built on the hardest money ever created. This is a cultural difference that gives dimensions of value to bitcoin that few in the U.S. can even comprehend. They are not factoring that into their bitcoin price predictions. This is not even to mention the utility of being able to move money across borders with safety and ease, another common Latin American business requirement that most Americans do not account for.

A trustless transactional system built on sound money that cannot be reversed, confiscated or inflated away fixes the fundamental obstacles to widespread Latin American economic development. Latin America is a powerhouse of industry with over half a billion consumers and rich natural resources; however, because of complex economic obstacles, it has not yet been able to fulfill its potential on a global scale. We are quite possibly on the edge of seeing that potential fulfilled and experiencing a type of growth that has not been witnessed in our lifetimes.

If bitcoin becomes the new gold standard for this entire region’s economic development, do you want to be late to the party?

This is a guest post by Nico Antuna Cooper. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

Investor Focus Misdirects Fidelity ‘Bitcoin First’ Report

08/02/2022 by Idelto Editor

A recent report from financial services giant Fidelity captures Bitcoin as an asset class of its own, but fails to recognize its true potential.

On January 18, financial services giant Fidelity published “Bitcoin First: Why Investors Need To Consider Bitcoin Separately From Digital Assets,” written by Director Of Research Chris Kuiper and Research Analyst Jack Neureuter.

For many in the space, institutional recognition of bitcoin being a separate entity from what is commonly referred to as “crypto” was seen as a net-positive for Bitcoin. Fidelity should be commended for this recognition, and its attempt at due diligence to understand bitcoin as a digital asset in its own class. However, this report shows that institutional education still has a long way to go.

‘Which One?’

The paper opens with the dilemma of choosing which digital assets to invest in:

“Once investors have decided to invest in digital assets, the next question becomes, ‘Which one?’”

With the aptly chosen title of the report, Fidelity presents an articulated outline to guide its investors on a path of digital scarcity. Among the outline, Fidelity makes the following points:

-“Bitcoin is best understood as a monetary good, and one of the primary investment theses for bitcoin is as the store of value asset in an increasingly digital world.
-Bitcoin is fundamentally different from any other digital asset.
-There is not necessarily mutual exclusivity between the success of the Bitcoin network and all other digital asset networks.
-Other non-bitcoin projects should be evaluated from a different perspective than bitcoin.
-Bitcoin should be considered an entry point for traditional allocators looking to gain exposure to digital assets.
-Investors should hold two distinctly separate frameworks for considering investment in this digital asset ecosystem.”

After defining the outline, Fidelity moves to the first point: defining bitcoin as a monetary good.

What Is Bitcoin?

Fidelity discerns the difference between Bitcoin, the network, and bitcoin, the asset, commonly represented through capitalization of the “B” when referring to the network. Then, the authors begin to discuss bitcoin as a monetary good and as a network.

They discuss, on page five, how bitcoin has a (roughly) 1.8% calculable inflation rate that is inherently finite, and tied to a fixed amount of 21 million coins. This programmatic issuance ensures the first and only manifestation of digital scarcity that has ever existed as it relates to monetary goods — this scarcity drives the value of bitcoin in a way that cannot be replicated. Why can it not be replicated?

“Because Bitcoin is currently the most decentralized and secure monetary network (relative to all other digital assets), a newer blockchain network and digital asset that tries to improve upon bitcoin as a monetary good will necessarily have to differentiate itself by sacrificing one or both of these properties,” as the Fidelity report explains.

Fidelity, paraphrasing Vitalik Buterin, the founder of Ethereum, reports that this is in part due to the understanding that a database “can only deliver on two of three guarantees at one time: decentralization, security, or scalability.” This requires a sacrifice in order to attempt the replacement of Bitcoin which ultimately guarantees its failure.

When referencing the success and endurance of the network’s capacity to prevail against unforeseen obstacles, they provided a list of events in Bitcoin’s history that Fidelity views as negative, which were ultimately overcome. Here is the list:

Some of these events were actually net positives for Bitcoin, not negatives.

First, the anonymous creator was necessary to the success of the network. Having no target, no political associations, no beliefs attached to the protocol, are what allowed it to become an opt-out form of money that gives sovereignty of money back to the individual. A leader or creator assigns their identity’s system of beliefs upon the network, and Satoshi Nakamoto knew this, which is why they stayed pseudonymous.

Second, the “civil war,” also known in the space as “the blocksize wars,” established a true ethos to a programmatic and decentralized form of money, asserting that the amount of data stored within Bitcoin blocks should remain small enough to allow participation in the network with the relatively easy hosting of nodes, a critical aspect of Bitcoin’s decentralization. This was a proving ground, and vital to the story of Bitcoin, a tale of vision and consensus that would ultimately shape the protocol.

After discussing the “civil war,” the authors of the report move on to discussing hard forks (when consensus of the protocol splits, resulting in the creation of a new token) that were created in the name of scalability. Why does the issue of scalability matter for a digital asset?

Bitcoin Scaling

“Scalability has notably been the Achilles heel of the Bitcoin network as it maximizes decentralization and security, but as a result is the network with one of the slowest transaction throughputs.”

–Fidelity

This is not an accurate representation of the Bitcoin network. As Fidelity mentions multiple times in this paper, Bitcoin puts the focus on decentralization and security above all else. This means a slow-moving base layer, which is intentionally slow and not built to scale. Bitcoin was always meant to scale off-chain.

“Off chain” refers to the placement of applications built on top of Bitcoin, utilizing the ledger of Bitcoin for record keeping and use of bitcoin, the currency in ways that do not require every transaction to be processed on the base layer as soon as it happens. The most successful iteration of Layer 2 applications to date is the Lightning Network, which only receives a small paragraph of focus in this paper, which you’ll find below:

In the paper, Lightning is mentioned as a passerby in the conversation, yet it has led to El Salvador being able to adopt bitcoin as legal tender because of its capacity to scale at a nation-state level.

To claim scalability is an “Achilles heel” for Bitcoin is to question why gold was not capable of instant settlement on a global scale. The base layer of an asset must move slowly and securely, and systems are meant to be built on top of that base layer.

Now, I’m sure you’re wondering why the text in the above picture was highlighted? After discussing scalability and the iterations of Bitcoin that spawned due to hard forks focused on changing this scalability, the Fidelity report presents a Bitcoin versus Ethereum comparison that discusses smart contracts.

Ethereum Vs. Bitcoin

Below you will find a graphic showing the differences between Ethereum and Bitcoin. Note that in the previous picture referencing Lightning, the report authors stated that this Layer 2 application was “built using smart contract functionality.”

In this comparison, the Fidelity authors paint an inaccurate picture of whether the Bitcoin network can host smart contracts. Smart contracts have always been on Bitcoin, they’ve just been more limited than those on other platforms. Typically, protocols like Ethereum use the terminology of “Turing-complete” smart contracts. This means the code can simulate a Turing machine and is considered computationally more expressive, allowing for grander use cases.

Taproot, a protocol upgrade from last year, allows for more expansive use of smart contracts on Bitcoin. It does not enable the use of smart contracts, because smart contracts already existed on Bitcoin. This is a consistent misnomer in understanding Bitcoin, as many people think that smart contracts are not, or were not possible, until Taproot. In actuality, Taproot further expanded existing applications.

It may seem like the intention in highlighting this is to simply show where the Fidelity authors are wrong, but that’s not the case because they got a lot right on this paper, which is primarily focused on institutional adoption. The material of this report can certainly drive the narrative Fidelity wants to achieve.

But let’s go over one last, crucial component necessary to understanding Bitcoin.

Bitcoin’s Purpose

As mentioned earlier, Fidelity sees the primary reason for creation and technological innovation as a monetary good. As a financial services company, this perspective makes sense, and is demonstrated by the below excerpt:

“The first-mover advantage [of Bitcoin] led to a lack of true competition for bitcoin’s primary use case as a monetary asset and a store of value and creates a drastically different return profile for bitcoin investors.”

The primary use case is not as a monetary asset and it is worth noting that, upon its creation, there was no value to speak of that allowed for a store-of-value use case. Bitcoin’s true primary use case is as a tool for protest. Demonstrating this in the genesis block, the first block mined on Bitcoin, this text is etched in digital stone: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

Bitcoin is a direct response to the financial crisis of 2008 and the inability of our centralized systems to take proper action. Bitcoin is an opt-out monetary good that allows the user to exit the nation-state system and take sovereignty of their own wealth. It is a voice against wrongful and misguided authority and the embodiment of protest.

What Can We Conclude From Fidelity’s Take On Bitcoin?

“Traditional investors typically apply a technology investing framework to bitcoin, leading to the conclusion Bitcoin as a first-mover technology will easily be supplanted by a superior one or have lower returns. However, as we have argued here, bitcoin’s first technological breakthrough was not as a superior payment technology but as a superior form of money.”

–Fidelity

In this report, Fidelity got a lot of things right: bitcoin being considered separate from crypto, the Lindy effect showing that Bitcoin grows stronger by the day, the network’s enforceable scarcity as a highlight, why Bitcoin can’t be supplanted, struggles Bitcoin has endured, presenting bitcoin as a starting point for digital portfolios and the risks associated.

It’s clear that Fidelity meant for this report to target institutional buy-in, so it makes sense that it would tailor the narrative to one that entices long-term investment strategies built on the continued success of this new monetary good. But that does not mean that we should not, at all times, be vigilant and purposeful around the proper guidance of what Bitcoin is, and what it is truly capable of.

This is a guest post by Shawn Amick. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Institutional Investors Say SEC Having More Power to Regulate Crypto Will Boost Prices

08/01/2022 by Idelto Editor

Institutional investors are optimistic about the U.S. Securities and Exchange Commission (SEC) having more power to regulate the crypto market, a recent survey shows. They believe that if the SEC is granted extra powers, the prices of cryptocurrencies will be positively impacted.

What Institutional Investors Think About Crypto

Nickel Digital Asset Management, a regulated European digital asset hedge fund manager, recently released a report on the institutional adoption of crypto assets.

The report includes a survey and interviews with 50 wealth managers and 50 institutional investors across the U.S., the U.K., Germany, France, and the United Arab Emirates (UAE). They collectively manage around $108.4 billion.

The report explains that security concerns top the list of why institutional investors are skeptical about investing in crypto assets. According to the survey results, 79% of all respondents see asset custody as the key consideration for investing in the crypto space. The report further notes:

This was followed by 67% who said price volatility, 56% who cited market cap, and 49% who said the regulatory environment.

“Further 12% included the carbon footprint from Bitcoin and other cryptocurrencies in their top three reasons for not investing,” the report adds.

Respondents were also asked about crypto regulation. SEC Chairman Gary Gensler has called on Congress to provide the SEC with more power to regulate crypto exchanges and activities such as trading and lending.

The majority of respondents are optimistic about the prospect of the SEC being empowered with more authority to regulate crypto assets. Among them, 76% expect this will be granted this year.

The report detailed:

If the SEC is granted these extra powers, 73% of institutional investors and wealth managers believe this will have a positive impact on the price of crypto and digital assets and 32% believe it will have a very positive effect.

Do you think the SEC should have more power to regulate the crypto space? Let us know in the comments section below.

ARK Invest On-Chain White Paper Summary

05/01/2022 by Idelto Editor

The paper highlights Bitcoin’s real-time, global public ledger as a unique toolset and walks through some key on-chain metrics to understand.

The below is from a recent edition of the Deep Dive, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

In today’s Daily Dive, we’re highlighting the latest ARK Invest Bitcoin white paper, “On-Chain Data: A Framework To Evaluate Bitcoin.” The paper was authored by Yassine Elmandjra, analyst at ARK Invest and David Puell, on-chain analyst and market researcher. Both are leading analysts in the space with a history of exceptional work. We will summarize their recent white paper and provide some Deep Dive resources to supplement.

TLDR: The white paper’s aim is to help investors understand how to analyze and value bitcoin just like other traditional assets. The paper highlights Bitcoin’s real-time, global public ledger as a unique toolset and walks through some key on-chain metrics to understand.

Elmandjra and Puell start by breaking down on-chain data into three distinct layers across network health, buyer and seller behavior and asset valuation. Each layer is tailored to a different group of market participants.

The network health layer covers monetary integrity, security and usage of the Bitcoin network. Evaluating address supply distribution, supply in addresses holding fewer than 10 BTC has increased since 2013.

Transaction volume and velocity are ways to measure the health of the network. Transaction volume is approximately $53 million per day. Annual velocity reached a bottom in April 2021 which could be a result of investors diversifying into other cryptocurrency assets or because transaction activity is moving back on-chain.

For a deeper look into the total transaction volume of the network and the efficiency of the network, see The Daily Dive #108 – Bitcoin: The Most Efficient Value Settlement Network.