Due to volatility and price fluctuations with Bitcoin you would be forgiven for thinking that not a lot happens beyond this at times in the space, however that is not the case at all. Bitcoin has come a long way since 2009 and it has already made a significant impact on the world, lets dive in.
Bitcoin historically is known as a peer-to-peer financial system. Created initially as a virtual currency and method of payment outside of the control of a centralised person, group or agency, it has emerged as a hedge against inflation with many referring to it as, ‘digital gold’.
Bitcoin in the early days was mined by standard computers however in recent years it requires highly technical, specialised equipment to complete this task. Each time a miner adds a new block of transactions to the blockchain, they earn Bitcoin as a reward (currently 6.25 Bitcoin, by May 2024 this is reduced to 3.125). A Bitcoin transaction fee is what a user pays to miners. The more the user pays to get their transaction included in the blockchain the higher the chance their transaction will be picked up immediately. This is due to a limited amount of space in each block.
In 2009 the bitcoin network was launched. Satoshi Nakamoto mined the genesis block of bitcoin (block number 0), which had a reward of 50 bitcoins. The genesis block had recorded on it the following message:
‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.’
Inscription on the Bitcoin blockchain.
The recorded message is a reference to a headline in the Times Newspaper published on January 3rd, 2009. This note has been interpreted as both a timestamp of the genesis date and comment on the instability caused by fractional-reserve banking.
The early days.
May 22nd, 2010 is mostly recognised as ‘Bitcoin Pizza Day’. This is the day when the first notable retail transaction involving physical goods and Bitcoin took place. Two pizzas were purchased in Florida for 10,000 BTC which had been mined by Laslo Hanyecz and had a value of $30 at the time the transaction was made.
2011 and 2012 saw Bitcoin’s use case spread as it continued to be used for transactions among a growing community. Orlando-based company, BitPay’s platform recorded over 1000 merchants using its service to allow online merchants accept Bitcoin as payment.
Coinbase launched its services (October 2012) to buy and sell Bitcoin using bank transfer. The company would go on to be one of the largest exchanges in the world with over 89 million users and more than $278 billion worth of assets (coinbase.com) and later would become popular with users in Ireland and the United Kingdom.
Largely seen as a significant year in Bitcoin’s development, 2013 is seen as the year Bitcoin was transformed from a relatively obscure currency for digital purposes to attracting more mainstream attention globally.
It was in March 2013 when Bitcoin’s market cap exceeded $1 billion which sparked interest from investors and people outside of the initial digital community. The first ATM was installed in Vancouver, Canada. To date, it is estimated there are over 40,000 ATMs in the world selling Bitcoin.
Bitcoin exchanges similar to Coinbase begin to emerge in China which increased the volume of Bitcoin purchased as interest among Chinese investors grew.
In the summer of 2013, the first Bitcoin ETF proposal was made to the Securities and Exchange Commission (SEC) by the Winklevoss twins, owners of Winklevoss Capital. The proposal was rejected but this was certainly a milestone in Bitcoin’s mainstream development as discussed later.
Self Custody.
As Bitcoin’s popularity continued the importance of offline self-custody started to become an essential part of investing in Bitcoin. In 2014 the world’s largest exchange at the time was MT. Gox. Thousands of Bitcoin were stolen in a hack of the exchange and the company filed for bankruptcy. This incident highlighted the danger of leaving such an asset in the custody of an exchange and highlighted the only way to store your Bitcoin was via self-custody.
Even though this had happened with Mt. Gox, Coinbase continued to develop, becoming the world’s largest exchange and securing $75million in funding to develop the company further. As 2015 progressed so did the number of merchants accepting Bitcoin as a method of payment, reaching over 100,000 for the first time.
Government and institutional approval.
Adoption continued in 2016 with Japan recognising Bitcoin as having a function to be similar to money and Bitcoin payments were offered in South Africa on Bidorbuy, which is South Africa’s biggest online marketplace. To add to this, Swiss Railway operator (SBB) upgraded its ticket machines to allow Bitcoin to be purchased and sent to a wallet on a phone or by creating a paper wallet.
Exchange volumes continued to increase in 2016 and 2017. Japan legalised Bitcoin as a legal method of payment and Russia also legalised its use.
The summer of 2017 saw the ‘Bitcoin Cash Hardfork’ which ultimately failed as the original Bitcoin continued to follow the original set of rules it was designed for and the later development of the ‘Lightening Network’ which improved speed and lowered costs of transactions rendered Bitcoin Cash stagnant.
After a relatively quiet year in 2018, 2019 saw development on the institutional front as NASDAQ added the Bitcoin Liquid Index to its trading services. Trading volumes continued to increase as did the price, as regulators, particularly in the UK and US began to focus in. The Bitcoin futures trading platform, Bakkt was launched by parent company ‘Intercontinental Exchange (ICE)’ in September of 2019 offering monthly Bitcoin options and cash settled Bitcoin futures.
With regulation of Bitcoin becoming increasingly likely, several highly respected investors publicly shared their investments and views on Bitcoin. Paul Tudor Jones (Hedge Fund Investor) described it to Bloomberg as “the best profit maximising strategy”. He likened Bitcoin to Gold in the 1970’s and how it is similar in hedging against inflation.
Cathie Wood, CEO of ARK Invest also invested heavily in Bitcoin. According to a filing made by the company in 2021 to the SEC, Ark Invest had purchased $19,872,939 worth of Bitcoin. The fund is widely known for focusing on emerging and developing technological areas.
Tesla announced a $1.5 billion purchase of Bitcoin while PayPal also made its first announcement, allowing its users to buy and sell Bitcoin on its platform which increased the accessibility to millions of their users.
With the ever-increasing exposure Bitcoin was receiving and its use cases becoming widely known, one of the biggest developments was always going to be Bitcoin as legal tender. With many predicting this was going to be the case in the future it came as no surprise when Bitcoin was announced as legal tender in El Salvador alongside the USD. According to PWC, 3 million citizens were using the nations Bitcoin wallet with $2million per day in remittances in 2021.
El Salvador’s bond performance has now returned over 70% according to Bloomberg (August 23) with President, Nayib Bukele attributing the performance to his decision to not only use Bitcoin as legal tender but for El Salvador to continue to purchase the asset as a store of value.
The issue of self-custody and its importance returned in 2022 with the collapse of the FTX exchange, again many stored their Bitcoin on the exchange and will struggle to recover their asset.
Economic uncertainty.
2022 marked the first year Bitcoin has been in existence during a rate rising environment or recession. It remains an ever-increasing choice for store of value especially during inflationary times due mainly to its fixed, limited supply. Even with its fall from record highs in November 2021 major investors continue to store their wealth in the asset with a long term strategy.
Since 2020, Microstrategy (NASDAQ listed business Intelligence firm) have been purchasing Bitcoin as a long-term investment. CEO, Michael Saylor in the company’s press release (August 11, 2020) described Bitcoin as ‘a dependable store of value’ and the investment in Bitcoin would ‘provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments.’ The company, as of 2023 have Bitcoin assets in the region of $4 billion and continue to invest.
2023 has so far seen several high-profile applications to the U.S. Securities and Exchange Commission (SEC) for a Bitcoin Exchange-Traded-Fund (ETF) to be granted. High profile applicants include Valkyrie, Invesco, Ark, VanEck and most notably Blackrock- the world’s largest asset manager.
Many believe the SEC will grant a spot ETF in 2024 with 9 applications currently being considered for approval. The recent court victory over the SEC’s rejection of Greyscale’s proposed ETF by the company means a review of that previous decision is required as directed by the court..
With exposure to multi billion-dollar funds and economic uncertainty in the latter part of 2023 moving to 2024, Bitcoin is emerging as the perfect hedge against devaluing fiat currencies and inflation as a long term strategy. According to Forbes, BItcoin outperforms 97% of all S&P 500 companies in 2023.
We at Florin21 believe the future of Bitcoin is an exciting one with the potential to change the world. It is a disruptive technology that will continue to challenge the status quo of the financial system. Only time will tell how Bitcoin will ultimately play out, but it is a technology worth investing in.
Upcoming regulation amongst governments around the world who are still trying to figure out how to regulate digital assets could have a major impact on the price and adoption of Bitcoin. Regulation of cryptocurrencies outside of Bitcoin is needed in order to limit ever increasing ‘pump and dump’ scams which people have fallen victim to over the past decade.
The continued adoption of Bitcoin by merchants and businesses will be essential for its long-term success around the globe, helping to speed up transactions and reduce the cost to almost zero with the lightening network.
Here at Florin21 we can help you make informed decisions about a strategy which is specific to your needs and requirements, providing expert guidance on safe purchase, self-custody and future planning.
