Bloomberg Brief has published a Special Report about Bitcoin. Written as an introduction for financial professionals and busy investors with little previous knowledge of Bitcoin, the report gives far too much space to marginal aspects such as price swings, scams and bankruptcies. However, while the depth of the analysis doesn’t match that of recent reports by Goldman Sachs and other top financial institutions, the Bloomberg report offers interesting insights and opinions that highlight current trends and issues in the Bitcoin space.
Barry Silbert, founder and CEO of the Digital Currency Group and creator of the Bitcoin Investment Trust, the first Bitcoin investment vehicle publicly traded in the United States, focuses on the price of bitcoin and hopes it will increase. “People will get excited about bitcoin when they believe its price will rise, which will create a flywheel effect of increased adoption, velocity, trading, etc.,” he says. “Bitcoin can live up to its promise, but it will only be possible if the price and liquidity are a lot higher than they are today.”
Taking the opposite view is Stony Brook University finance professor and Bloomberg columnist Noah Smith, who is persuaded that bitcoin becomes more useful as a currency the more its price drops. Currencies and investment vehicles like stocks and gold are very different, and Smith considers the currency aspects of bitcoin as more promising and important than the investment aspects.
“The sooner people give up the hope that bitcoin will skyrocket in price, the sooner they will be willing to spend bitcoins in everyday life, the way they now spend dollars,” he says, and adds that the quicker bitcoin as an investment dies, the quicker bitcoin as currency can come to life.
Jerry Brito, Executive Director of Coin Center, argues that utility will be the best barometer of success. As examples of useful applications, he mentions both new applications to micropayments and the Internet of Things (IoT) and new, cheaper and more agile business models for existing applications.
Ron Hose, co-founder and CEO of Philippines-headquartered Coins.ph, focuses on the impact of cheap and efficient bitcoin remittances.
“Think of how Skype lowered the cost of calling overseas a decade ago,” he says. “Bitcoin can have the same effect on the remittance market.“
Gil Luria, managing director for financial technology research at Wedbush Securities, mentions cross-border remittances and micropayments as “obvious places where the [bitcoin] technology can radically reduce friction,” and notes that the provision of banking-like services to underbanked populations around the world is likely to have a high impact.
However, Luria thinks that Bitcoin is still a research area, and not ready yet for widespread operational use in mainstream finance. More technical and especially operational development is needed, and traditional payment operators have a role to play, he believes.
“The legacy service providers are not asleep,” notes Luria. “They will undoubtedly come up with their own ways to utilize digital currency and the blockchain.”
In recent news that support Luria’s take, MasterCard Introduced fast bitcoin-like personal payments
The Bloomberg report includes a summary of Goldman Sachs’ recent report on the future of finance, focused on emerging electronic payments. As online and mobile banking evolves, bitcoin and other online currencies could gain more traction.
Most contributors to the Bloomberg report consider regulations in the Bitcoin space a positive trend.
“[Bitcoin] is an experiment being done outside of the controlled environment of a laboratory,” says Boston University’s Mark T. Williams. “As a result, there need to be controls around it, which means stronger regulation. There are many risks still to be addressed.”
Williams is persuaded that the pseudo-anonymous nature of Bitcoin must “go away.” On the other hand, Luria thinks that Bitcoin will actually make it harder for bad actors to hide. “[E]very transaction in bitcoin is tracked and, eventually, traceable,” he says. “It seems counterintuitive, but using bitcoin actually makes it much easier to catch the bad guys.”
Image via the Bloomberg Bitcoin Report.