The Bitcoin Newsletter 12 - How Bitcoin could change the financial industry
Welcome to the 12th edition of The Bitcoin Newsletter
Wall Street is undergoing a significant transformation as it increasingly embraces Bitcoin. Currently, several of the world’s largest* asset management firms have submitted spot Bitcoin ETF applications for review by the SEC.
These financial heavyweights such as BlackRock, Fidelity, Invesco, Franklin Templeton Investments, Wisdom Tree, VanEck, Global X, Ark Invest, Valkyrie, Bitwise Asset Management, and Galaxy Digital have approximately $16.7 trillion in total assets under management (AUM). Only a fraction of their AUM invested into spot Bitcoin ETFs can have a massive impact on the acceptance of Bitcoin.
While much has been said about the potential impact of these financial giants entering the Bitcoin arena, today, we'll shift our focus. In this edition of the newsletter, let's explore the influence that Bitcoin is poised to exert on the broader financial landscape. Furthermore, I'll share my outlook for the Bitcoin market in 2023.
Best Regards,
Leon
*ranked by the total of assets under management
DEEP DIVE
Bitcoin: How Bitcoin could change the financial industry
The reason behind the past bans and restrictions on Bitcoin by major powers like China and India is their fear of losing control over the flow of money. However, it's essential to understand that Bitcoin operates beyond the reach of traditional control mechanisms. No laws or regulations can alter this fundamental nature. The discovery of Bitcoin represents a watershed moment, introducing the concept of digital scarcity, as Gigi often points out. This breakthrough addresses a specific challenge: the separation of money and state, resulting in the creation of an independent electronic cash system that is immune to arbitrary monetary inflation, with no central authority being able to arbitrarily manipulate the supply.
This rationale might also explain why the SEC is cautious in permitting Bitcoin ETF applications. The regulatory body recognizes the inherent uncontrollability of Bitcoin and seeks to curb its influence within the financial industry. However, it's a battle that cannot be won. Bitcoin transcends the confines of any single state or corporation; it embodies an idea whose time has come.
Rather than dwelling on concerns about how BlackRock's involvement might adversely affect Bitcoin, let's direct our focus towards contemplating how Bitcoin is poised to influence the financial sector. Ultimately, ETF approvals are on the horizon, a development that will help legitimise Bitcoin and foster greater corporate adoption.
This transformation demands increased regulatory clarity, which is steadily unfolding. Historically, bitcoin has been treated as an intangible asset, recognized at its purchase price and devalued in the event of losses, without being revalued in the event of price gains. This discouraged companies from holding bitcoin on their balance sheets. However, the Financial Accounting Standards Board (U.S.) has recommended valuing cryptocurrencies at fair market value on corporate balance sheets, eliminating potential long term impairment losses. This new accounting approach will enable companies to also reflect financial gains resulting from bitcoin’s price appreciation.
Our current financial industry operates on the fiat system, a system that some argue is marred by fraudulent practices, wherein governments siphon market productivity through inflation, impeding progress and prosperity. This unethical ethos is the basic building block of our economy and, unfortunately, of many schools, universities and corporations, including many of the major financial firms.
While this critique may seem harsh, Bitcoin has the potential to unveil the inner workings of our financial system and the harm it inflicts. Just a few people in Rome questioned the existence of slavery, today, few question the presence of a system that essentially robs us of our time. Inflation dilutes the value of our earnings, effectively stealing the time we dedicated to earn that money. Time, alongside bitcoin, stands as the only scarce resource on our planet.
Bitcoin represents a fair social contract that is impervious to arbitrary changes or manipulation of transaction history. As companies integrate bitcoin into their structures, they will shift from the deceptive and exploitative ethos of the fiat system to one grounded in honesty and transparency. Bitcoin emerges as the ultimate store of value, a prime treasury asset that safeguards productivity from the clutches of monetary inflation.
As bitcoin takes on the role of money, it can be the building block for an equitable society. I eagerly anticipate contributing to its adoption and witness the positive change it may spark. Rest assured, Bitcoin ETFs are merely the inception; soon, many companies seeking to protect their productivity from monetary inflation and states upholding a reasonably free basic societal order will likely embrace Bitcoin.
Historically, any government-issued currency faced devaluation, often culminating in a currency collapse, conflict or even war. Bitcoin introduces a paradigm shift. For the first time in history, we possess the means to securely store productivity effectively and avert societal decline, as was seen, for example, after the hyperinflation in the Weimar Republic, which was arguably the breeding ground for the hatred and despair that led to World War II and the Holocaust.
While the fiat system may eventually collapse, the fundamental social order is likely to endure because of Bitcoin, which has been designed to emerge from this turmoil as the building block of a free and open society.
WORTH TO KNOW
The halving is imminent – market outlook for 2023
While I typically don’t delve into bitcoin’s price or market trends, I pay very close attention to it. In fact, I seriously got into Bitcon when I was intensively involved in analysing the stock market while studying financial economics at university. I've also been investing in stocks for as long as I can remember. It is in my nature to view bitcoin as a financial asset, even if I am particularly interested in the philosophy and ethics behind it.
In recent months I have been shocked by the undifferentiated statements of many Bitcoiners. Statements suggesting that bitcoin is in an early stage of a bull market and could soon reach a million dollars are not just sensational to bring clicks; they can also be misleading and potentially hazardous, as they may drive individuals to make impulsive decisions. To truly grasp how bitcoin’s price evolves, one need only examine its historical price trajectory.
For instance, when we examine the bitcoin price chart from September 2017 to December 2020 below, a recurring pattern becomes evident, Bitcoin experiences minor bull traps in bear markets. However, the price consistently stabilises at higher lows until a supply shock induced by a halving of the block reward eventually triggers an upward surge, marking the onset of a bull market.
Bitcoin’s price chart, Sep. 2017 to Dec. 2020, Source.
As can be seen in the following chart, which shows the period from October 2021 to September 2023, i.e. the peak of the last bull market and the current bear market, bitcoin has also experienced moments of upswing, which, however, are always accompanied by higher lows. My expectation is that bitcoin will continue to traverse a volatile yet upward-trending path sideways, with the next bull market likely to emerge post April 2024 halving event. Typically, a supply shock from the halving leads to a price increase, which in turn garners media attention, further boosting demand, and consequently propelling the price even higher in a self-perpetuating cycle.
Bitcoin’s price chart Oct. 2021 to Sep. 2023, Source.
There is usually an upward trajectory until a peak is reached, followed by a correction to alleviate market leverage. I don't anticipate this pattern changing either, particularly because the Wall Street players, employing conventional business practices like high debt and leverage, will likely contend with Bitcoin's inherent volatility. This, I believe, is a healthy aspect of Bitcoin, as it usually humbles even the most formidable players.
In order to deal with volatility and avoid unwarranted risks, my strategy remains unwavering. I purchase bitcoin and securely store it in cold storage, paying little attention to its fiat price. After all, bitcoin's fiat price is just a distraction.
IDEAS OF INTEREST
I had the honour of being guest on the 100th episode of Niko Jilch's German Bitcoin podcast Was Bitcoin bring. Niko is a financial journalist with a 15-year track record who has recently focused entirely on Bitcoin. He is a tremendous asset to this space. We talked about how Bitcoin will replace the broken monetary system - and with it, real estate investments as we know them today. The first part of our conversation is online. WATCH
Niko Jilch held a phenomenal fireside chat with Michael Saylor at Die Bitcoin Konferenz in Innsbruck, the largest German-speaking Bitcoin gathering. Saylor clearly explained why Bitcoin ETFs will help the general adaptation and why we shouldn’t have to worry about Bitcoin's security. WATCH
Nik Bhatia was recently joined by Michael Saylor on The Bitcoin Layer podcast to discuss how Bitcoin revolutionises corporate finance. Saylor shared the importance of upcoming accounting changes, his thoughts on spot ETFs, systemic inflation, long-term bitcoin adoption, and treasury management. WATCH
If you want to support me. Feel free. You can send me some satoshi/bitcoin.
My lightning address is: law@getalby.com
My bitcoin address is: bc1qyc9q89wjzmvaw729tj3wsrsfhft53mjycrjxdk
Nostr PubKey
npub1v5k43t905yz6lpr4crlgq2d99e7ahsehk27eex9mz7s3rhzvmesqum8rd9
Resources
Der Gigi - Bitcoin is an idea READ
Leon A. Wankum - Bitcoin means focus READ
Disclaimer: the content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Make sure you do your own research before making any investment and be aware of your own risk tolerance. If you like to build on my thoughts, feel free, but please cite me as the source. 2023 - Leon A. Wankum. Editing and content creation by Clemens Haidinger.