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May 2021

Bitcoin: Time to go All-In or Fold?

Last month, I launched my Coffee Chats series featuring leading women executives discussing trending topics. Our most recent conversation focused on Bitcoin – A New Asset Class?

What is Bitcoin? To understand that, one must first fully comprehend the meaning of Blockchain technology. Blockchain is the underlying transparent technology providing a secure ledger for anonymous transactions, including, but not limited to, proprietary information, digital assets, rights, etc. Bitcoin, on the other hand, refers to the transfer of only digital currencies using blockchain technology.

Simply put, if blockchain were the highway, bitcoin would be the cars using the highway to get from one point to another.

Our conversation began by reminiscing about a time when CIOs were told to block internet access within their organizations. Today, they cannot function without it. Similarly, with traditional and trusted organizations publicly adopting blockchain technology and encouraging the use of cryptocurrency, the world may fast be steering toward more mainstream adoption of bitcoin.

The American multinational investment bank and financial services company Goldman Sachs (NYSE:GS) announced adding Bitcoin to its year-to-date asset returns report. What is even more interesting is that it is the leading cryptocurrency to occupy the top spot with over 100% early returns. (https://www.investing.com/news/cryptocurrency-news/bitcoin-too-important-to-ignore-as-goldman-sachs-adds-the-asset-to-its-yeartodate-asset-returns-report-2478004)

Online payments system Paypal also began allowing its users to buy, sell, and hold cryptocurrencies in their digital wallets starting October 2020. Last month they allowed users to spend their virtual currency globally, and recently, they announced Venmo, their peer-to-peer payment service, as the one-stop option for users to deal in Ethereum, Litecoin, and Bitcoin on its app for as little as $1 and publish the transactions on the app’s feed. (https://economictimes.indiatimes.com/tech/technology/paypals-venmo-launches-crypto-buying-and-selling/articleshow/82161957.cms)

But is Bitcoin the right investment for you? As industries juggle with the decision to become early adopters versus followers, Bitcoin’s price on the stock market has shot up to $55,000 this year (on March 15, 2021) vis-a-vis $5700 in 2020. Blockchain technology overall raised $300M with $5.2B valuation and 31M users across 200 countries.

Needless to say, if you eventually use blockchain technology—and you will, given the pace at which the world is progressing—having a cryptocurrency, e.g., bitcoin, would be a good way to ensure transparency and flexibility as you counter the risks associated with it.

Here are a few factors to keep in mind as you make your decision:

1. Transparency: While it does do away with the middle-man – no banks or government interference – bitcoin comes with a realm of anonymity. You may never know who lies on either side of the deal, paving the way for security breaches and hacking.

2. Volatility: While bitcoin may be used as a hedging strategy, it may not necessarily be in the front office. That makes it tricky and even more volatile than oil.

3. Risk: Bitcoin operates outside the oversight of the government and central banks.

4. Secure financial trading platform: It is much more flexible to have a cryptocurrency attached to your blockchain to ensure transparency. However, it is accessible only to the people who can afford it.

5. ESG: Due to the millions of computers involved, a significant amount of energy is required to mine and program bitcoin.

6. Decentralized: There will be a yin and yang surrounding the command control of bitcoin till a more centralized global approach is established. For example, the US government has decentralized how states are funded, and taxes/fees levied, whereas it is still command-central control in China.

The conversation concluded with possible solutions that could test and facilitate how people use bitcoin. One idea that was suggested was to use a potential government digital wand to determine adoptability. An example cited was the paper currency in China with a hologram on it, allowing the government to track the physical notes. A similar approach could be discussed for bitcoin—mainly to prevent hackers from misusing the data and realizing substantial methods to overcome anonymity if and when required.

Another idea discussed was the healthcare sector being an early adopter of the technology to ensure the connectivity between the intermediary and your health record as one single version of the truth.

That said, the next step could potentially include incorporating blockchain technology in our everyday supply chain, like the current dissemination of the COVID-19 vaccine, thereby allowing the developer to be more in control of the data and currency as you link it to the digital wallet.