People are always chasing better things. For example, if you are interested in gambling bonuses, you would like to see a list of the most advantageous offers by using a site like BonusesFinder. This also applies to the financial sector: if the current financial rules are not advantageous enough, you start chasing a new option.
That’s what Bitcoin was aiming for: when it emerged in 2008, this digital currency aimed to create a new world. If you take a look at the original manifesto, you can see that Bitcoin was trying to create “technolibertarianism”: the goal was to change the government by using technology, to save people from a financial world controlled by banks, and to let technology rule society, not politicians or bankers.
Almost 14 years have passed, and hundreds of new cryptocurrencies have joined the revolution started by Bitcoin. The problem is that they lost their purpose at some point along the way: no one is interested in paying with them anymore. The vast majority of crypto owners use them as an “investment tool.”
“Surprisingly, iGaming is one of the few industries that still accepts payments in cryptocurrencies,” says Tony Sloterman, Product Owner of Casino Bonuses Finder company. “More than a decade has passed since the emergence of Bitcoin, but industries other than iGaming still do not support it as an actual payment method.” So, what’s the reason for this? Why did cryptocurrencies fail to deliver on their promises and turn into what they are fighting against? Let’s try to find the answers to these questions.
Promises vs. Facts
Let’s briefly recall Bitcoin’s original promises so that we can begin to identify the problem.
- Promise: Bitcoin is an independent currency produced with blockchain technology without being tied to a central authority or person.
- Fact: Bitcoin is controlled by miners. More than seventy percent of these miners are in China. In practice, it is possible to say that Chinese miners manage Bitcoin because what controls more than half of something is its owner.
- Promise: Bitcoin is not the equivalent of any asset or money.
- Fact: In practice, the value of Bitcoin is tied to USD.
- Promise: Bitcoin has a fast transaction speed and no transfer fees.
- Fact: Bitcoin transfers can take hours, and transfer fees can be extremely high.
It is not possible to solve most of these problems: the technology that Bitcoin uses has some limitations. For example, you cannot prevent a particular country from controlling the majority of the mining market. For the same reason, transfer times and fees for a popular cryptocurrency will always be high. Most of the other cryptocurrencies have been created to solve these problems, but now it is possible to say that they also have turned into investment tools. Currently, crypto holders prefer digital currencies to invest, not join a revolution or make payments.
Portfolio Managers Discover Bitcoin
We can say that the transformation of Bitcoin from being a digital currency into an investment tool started between 2016-2017. The reason for this is that portfolio managers, namely investment experts, started to see cryptocurrencies as a new “asset” in this period. Academic articles published between 2016-2017 talk about how advantageous Bitcoin can be. To give some examples:
- “A Markowitz Walk Down Crypto-land: Modern Assets for Modern Portfolios” (2017, Bocconi Students Investment Club): This article talks about adding cryptocurrencies to an existing portfolio will optimize it.
- “Assessment of Cryptocurrencies as an Asset Class by Their Characteristics” (2018, Thomas Ankenbrand and Denis Bieri): This article says that cryptocurrencies are the best option for increasing portfolio diversification due to their high volatility.
- “Bitcoin as a Financial Asset: Impact of Bitcoin on a Well-Diversified European Portfolio” (2018, Amaury and Ward): This study claims that if Bitcoin is added to a portfolio containing European equities, productivity will increase by a minimum of 2%.
A Bubble Created by Academics and Brokers
We could multiply examples, but they all say the same thing: there are dozens of academic studies suggesting using Bitcoin and other cryptocurrencies as an asset. As you can imagine, Wall Street did not miss such an opportunity and started to buy large amounts of crypto. This created a chain reaction, causing end users to do the same. Exchange sites suddenly reached billions of dollars in transaction volume every day, and almost everywhere in the world, Bitcoin and other cryptocurrencies began to be seen as a way to “get rich fast.” This understanding still continues today. A sector inflated by portfolio managers with the encouragement of academics has emerged: this sector is actually not as profitable as it is thought due to price drops from time to time, but millions of people still think that they can have a new life with cryptos.
Bitcoin and other cryptocurrencies came under the control of what they were fighting against and became an asset like oil or gold. No one is interested in paying with them anymore or considering using them to change governments. We created something digital, gave it meaning, and let it be run by brokers: the bubble they created won’t deflate for a long time, that’s for sure.
This also explains why Bitcoin and other cryptos still have not turned into a means of payment. Yes, you can use them to pay for something in theory, but there will be several problems. First of all, there aren’t many merchants supporting them yet. Indeed, iGaming may be the only industry where cryptocurrencies can be used to pay. With the exception of a few niche examples, startups and industries are not interested in offering crypto support because no one is using them for making payments. Second, the transfer fees of popular currencies will be too high: if you are not transferring big amounts, the cost can be higher than the money sent.
And every day, new crypto is launched to present a new “investment opportunity.” Before we can start using them for their intended purpose, the “asset bubble” must first burst, that is, literally collapse. Only then can we start paying with cryptos: until that day comes, it will not be possible to use digital currencies to change the world.