With recent movement in Bitcoin I am hearing a lot about how “institutional money” is starting to come in. To some of us, this was not surprising. You see, this is how things usually play out. There are early adopters, then institutional interest and eventually governments. Let’s look at the personal computer as an example. When Steve Wozniak invented the personal computer he was actually on contract at Hewlett Packard and initially they had the rights to all of Woz’s work. When Woz presented the first PC an executive at HP famously said, “What would a normal person want a computer for?” and he and Steve Jobs celebrated the rejection because it meant they were free to pursue it on their own.
I was a child, and a bit of a dork, in the 70’s and 80’s so I remember when computers were still in the hobbyist phase. It wasn’t until after I graduated from college that computers started to become mainstream. With the usage of the internet booming, everyone wanted in. Everyone wanted to invest. I had lots of people calling me asking how they could “invest in the internet” and my answer was always that they couldn’t. You could buy AOL or Cisco stock but you couldn’t directly buy any of the internet itself. YouTube, Facebook and Google didn’t exist yet. Corporations were throwing buckets of money at people to create small internet divisions. I moved up in my job as an Art Director for a publisher into their new internet publishing division. Then in 2000 the dotcom bubble burst. It seemed like the end but it was only the beginning.
Now we’ve had boom and bust cycles with Bitcoin before, but I would argue we are just at the end of the early adopter phase. Cryptocurrency is just starting to go from hobbyists to institutional interest. With new dollars being printed at the fastest rate in history it isn’t difficult to see the appeal. MicroStrategy followed by some insurance companies purchasing Bitcoin shows just the first glimpse of institutional money coming in. It’s important to understand that these are not speculators with a short time frame. The idea is that holding cash could provide a long term problem as we are due for some inflation. Holding Bitcoin as part of a company’s war chest should help mitigate the inflation problem. As these smaller companies dip their toes in the water, larger corporations that have the same concerns are watching. They wont want to miss this train and we’ll soon see major investments from banks and corporations like Apple which, as of this writing, holds 192 Billion dollars in cash.
Governments are always last to the party. Handcuffed by policy and not positioned to be nimble they make decisions slowly. The U.S. government still runs much of its computer infrastructure on a dead computer language called Cobol. There’s a small group of guys called the Cobol Cowboys that get called for help when things break. We basically already have a digital dollar and being able to just change a number on a computer screen to give your country more money is not a temptation politicians can ignore. They will continue to make digital money which is inferior to Bitcoin until one government decides to hold Bitcoin, like many do with gold now, as an asset which backs their own currency. This will be the start of the end game, where price volatility of Bitcoin dies. The price wont matter to governments and as they all enter the race you will see the price explode. I would not be surprised if when this happens the price of Bitcoin goes up 50-100 times in a matter of weeks. They will buy everyone’s bags. Once the governments settle down, so will the price and we should see a fairly stable price for Bitcoin thereafter. What will that price be and how long will it take? I have no idea. It could be next year and it could take decades for this all to play out. What does this mean for cryptocurrencies besides Bitcoin? That’s a much harder question to answer in my opinion. It’s possible that all this could still happen, but it wont be Bitcoin everyone is clamoring for.
And of course this isn’t the only way things could play out, but I see it as the most likely. What kind of threats do you think exist, or how do you think this could get derailed? Comment below.
