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Bitcoin, by design is a disruptive force. Decentralised by nature, its purpose is to eliminate the central control of traditional financial system and replace this with a protocol where trust and permission aren’t requirements. A system that lends itself to global application and one holds promise of both productivity and profitability for early adopters. But where might this profitability come from?
I believe – like others – that there are numerous markets where bitcoin can and will make an impact. Let’s have a look at the 4 markets where we can expect bitcoin penetration in the short to medium term.
Bitcoin has a vast and unknown potential; a perfect combination of attraction for the hedge fund crowd. And attract it has. In fact, this is a market where bitcoin has already started to infiltrate. Over the last 2 to 3 years, bitcoin has seen significant interest - and investment - from dominant hedge fund players.
In 2013, Fortress Investments was the first mainstream investment company to list Bitcoin among the assets on its balance sheet, following a purchase of $20m in bitcoin.
Pantera Capital, a highly successful global macro-hedge fund investment firm, took the decision to change course and deal exclusively with Bitcoin, other cryptocurrencies and Bitcoin related companies. They are the majority partner of a Bitcoin hedge fund that includes other leading investment firms Benchmark, Ribbit Capital and Fortress. When speaking of the deal, Pantera CEO, Dan Morehead, said: “We believe Bitcoin is at an inflection point, making it the right time for a transition to more institutional management.”
The strategic shift from these dominant hedge fund players marks a significant step in bitcoin’s move into the financial mainstream, and a move we will continue to eagerly monitor.
At a most basic level, gold bugs and bitcoin supporters both believe in their preferred commodity as a means to protect their wealth from meddling governments. Gold enthusiasts place their trust in precious metals, and bitcoin buffs look to computational algorithms.
Both gold, and bitcoin, are considered to be conventional substitutes of currency, and thus good alternative investment options. Bitcoin is often touted as gold 2.0 as it essentially takes the appealing qualities of gold and digitises them.
If the proliferation of gold-bitcoin exchanges are anything to go by (that is, companies that have made it possible to exchange your physical gold for bitcoin), there’s a growing appetite for making the switch, and as such the gold market could quite easily lose some share to bitcoin bugs.
In 2014 a total of US$583 billion was moved across borders as remittance payments. A staggering $436 billion of that was into developing countries. Countries where recipients rely on the income of their migrant family members to sustain, in most cases, a meagre existence.
Expatriates have limited options when it comes to how they send their money back home; restricted by the oligopoly of the likes of Western Union and MoneyGram that tack on exorbitant processing fees, eating away at desperately needed funds.
If any market is best positioned for bitcoin penetration, it’s the remittance market. Using bitcoin as their preferred means to transfer money globally would mean little to no cost involved, preserving their money, and almost instantaneous clearance too. And this is a movement being already being fuelled by businesses such as BitPesa (Africa), Aabra (Global) and Rebit (Philippines).
Bitcoin was basically built for eCommerce. In Satoshi Nakamoto’s 2009 whitepaper introducing bitcoin, he covers this point by explaining: “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”
These weaknesses include:
Bitcoin addresses and solves these issues head-on and provides a mechanism for merchants and consumers to transact directly, outside of the traditional trust model, irrespective of where they are in the world or what their local currency is. Bitcoin is the native currency of the Internet, the home of eCommerce, and as such I’m confident that with merchant adoptions rates growing exponentially, this is a market we’ll continue to see bitcoin making great strides in the way of disruption.
While the markets I’ve mentioned above offer a high-level view of those ripe for disruption in the short to medium-term, there are many more that may be rocked to their core in the longer term. As companies continue to find innovative ways to make bitcoin more accessible to the masses, using the blockchain as a foundation in applications and functionality, it’s my firm belief that we’ll add many more to this list in the coming months, years and decades.