Perceptions about Bitcoin’s value will vary based on lived experiences. Some users in developed economies may observe a lack of correlation between the price of bitcoin and other assets and conclude that it has value as a hedge. In developing economies, other users may derive value from its ability to make remittances more efficient. Regardless of perceptions; however, social utility has always been the fundamental cornerstone of Bitcoin’s value. Social utility underpinned the genesis of Bitcoin, and social utility will remain an essential element of the digital currency in the years ahead. We observe Bitcoin’s social utility in its capacity to address a fundamental human right; financial inclusion. The digital currency was designed to enable transactions that were not previously possible or practical, such as accessible peer-to-peer exchanges, and in the process enable millions of unbanked to participate in a global financial system. There does not appear to be an alternative solution on the horizon to the utility that Bitcoin and its inspired ecosystem of decentralized finance (DeFi) provides, and their growth is inextricably linked to this vacuum. As we approach 2022 the financial inclusion epidemic persists with a global population of unbanked standing at well over one billion people according to the World Bank, including eight million in the United States according to the Federal Deposit Insurance Corporation.
Over the recent Thanksgiving weekend, I was enjoying a lovely turkey dinner with friends when the discussion turned to financial inclusion in developing economies. Well, that got me fired up. Bitcoin is contributing to the solution today, and it promises to do more tomorrow, I stated. My friend retorted that Bitcoin would become redundant as Central Bank Digital Currencies (CBDC) were on the verge of sweeping in to rescue over one billion unbanked people worldwide. Many millions of unbanked people had access to smartphones and the internet he argued, and this bodes well for CBDCs. I was well aware of the numbers, I wrote about it in my Master thesis. What my friend failed to realize was that much of the same barriers to inclusion in the existing global financial framework would continue to challenge regimes using state issued digital currency: a) an inability to meet identification requirements; b) no fixed address; c) a lack of credit history; d) minimum balance requirements; e) high transaction costs; and f) lack of trust. Bitcoin enables financial inclusion today under these conditions despite constant shocks that temporarily shake confidence in the project.
It should come as no surprise; however, that over the long haul, bitcoin persistently recovers from shocks. Why? A China ban on Bitcoin does not diminish the need for a more efficient way for diaspora from developing nations to remit funds to family members and loved ones abroad. The demonization of Bitcoin does nothing to ameliorate the hardship faced by over 1 billion unbanked people around the globe. Cries of unsustainable volatility risks offer absolutely no alternatives to those who experience currency devaluation and socio-economic risks that pose a wholesale threat to their life saving and wellbeing. Bitcoin offers real solutions today and potential to do more into the foreseeable future. These are the underpinnings of bitcoin’s value proposition.
I am often asked and typically reticent to comment on the price of bitcoin, but I will offer this commentary. An investment in bitcoin as a digital asset is an investment in the belief that its social utility will increase for a growing user base. Moreover, as a scarce resource that can be divided into fractional units, the only way for bitcoin to satisfy demand that outstrips its limited supply is for it to appreciate in value and be used at the fractional level.
This commentary is not intended to be financial advice. It represents the views of the author.
Jeff Bryan, MA, BA, CBP, CFE