Blockchain.com's Investment Thesis Analyzed

And does their thesis apply to you?

Facebook’s Libra Coin and the price of Bitcoin going up to $13,000, then back to $11,000 in about 36 hours are all over the news this week.

Instead of concentrating on price or Facebook, which I analyze in depth in the last 2 editions (here and here), I thought it would make sense this week to take a step back. This week we are going to look at why people buy and hold cryptocurrencies and why they don’t.

Introducing Blockchain.com

Blockchain.com has the most popular Bitcoin wallet in the market today with over 40 million wallets in use. It’s one of the best software wallets available. I have one.

Their data is among the top in the industry and my go-to when I want to explore things like Mempool activity. The Mempool is where transactions sit while they wait for confirmation to get into a Bitcoin block. Remember blocks are produced every 10 minutes. It’s common for transactions to be in the Mempool for more than 1 block but transactions waiting too long for confirmation are a bad thing…..

Blockchain.com also does excellent research and unlike many in the crypto-economy, their research is focused on hobbyists and non-technical people, not just those with the tech savvy to run their own Bitcoin node.

Blockchain.com regularly publishes research that includes information about airdrops, stablecoins, Stellar Lumens (XLM), and Bitcoin Cash (BCH). The most interesting of these reports to me is their 2019 Investment Thesis, which just came out this week. Click the link to get a PDF copy for yourself. It’s long at 150 pages but there’s lots of graphics and white space in it to make it very readable.

Here are some of the highlights:

I don’t think I need to tell you that Blockchain.com is bullish on Bitcoin both in the short term and the long term. While there are reasons why that we go over below, they also look at what is keeping adoption of cryptocurrency from growing even faster than it is.

Why People Don’t Use Crypto

Lack of Understanding/Trust

Unlike a couple of years ago, most people know what Bitcoin is now so lack of awareness isn’t the problem. Yet, lack of understanding or trust in it is a problem, according to a NY Federal Reserve Survey (p.10). However,

And the truth is in the short term Bitcoin is volatile, as we’ve seen this week……but that doesn’t make it bad.

But it is tough to invest in something you don’t understand, like on p.23

Lack of Need

People don’t need cryptocurrencies if they don’t have income or expenses in cryptocurrencies. This hinders adoption. But there are some good reasons to hold some crypto today (p.40)

Energy Concerns

Bitcoin consumes lots of energy. But many people don’t know that most of it comes from renewables so it’s not the environmental mess that some think.

From page 57:

77.6% of Bitcoin’s mining power comes from renewable resources. This is much higher than originally thought.

Benefiting from Destabilization

Some benefits come from financial destabilization and other unpleasant to think about events. From slide 66 of the thesis:

Cryptoassets are ‘largely independent’ of traditional financial assets so many hold in case something bad happens. But another result of this is many don’t hold cryptoassets because they DON’T want to think about anything bad happening. This despite the fact we just had a severe recession 11 years ago.

Do you like this kind of in-depth no-nonsense analysis? For less than $2 per week, you can get this right in your email box. No nonsense, just news.

Policymakers especially in the US are concerned about a recession now and a couple other factors like this one on p.70 of the report.

Bitcoin is one of these hard assets and easier to acquire and store than gold or silver.

Why People Would Use Crypto

People do use cryptocurrencies especially if you are not in the West. For those in hyper-inflation economies and failed states (think: Iran, Zimbabwe, Venezuela) there’s lots of reasons to use crypto.

Stablecoins

Stablecoins have many different uses but by design they are supposed to be stable. So if you are in Zimbabwe with crazy ridiculous inflation, wouldn’t it make sense to hold a stablecoin OR, like most people who use stablecoins now, use them as the on ramp to buying Bitcoin or Ethereum or Litecoin or DASH.

Stablecoins inherently lower volatility than home currencies make this possible.

Financial Exclusion

This is an argument we hear a LOT and even moreso in the past 2 weeks since one of FB’s goals of Libra is financial inclusion. This slide from p.42 explains it pretty clearly.

This is the market FB wants to conquer although Bitcoin, Ethereum, Litecoin and stablecoins can do the job too.

The digital gold argument

For years, we in the crypto community have been saying that Bitcoin is digital gold. It’s a hard asset like gold, with a capped supply and no government backing to run its value into the ground through inflation.

Bitcoin already has $3 billion in daily transaction volume. Real money is moving through the internet daily and in large quantities. From p.98

Technical Arguments in Favor

There are some technical arguments in favor of Bitcoin adoption too. Blockchain.com’s favorite two are: Web 3.0 and Decentralized Finance.

For Web 3.0 and DeFi to become a reality, new technology needs to be in place to allow transactions to be peer to peer and censorship resistant (meaning it can’t be reversed just because someone at Bank X, Government Y or Facebook Z says so). The thesis believes Bitcoin and digital assets will become the ‘plumbing’ for this new DeFi (p.99)

Will DeFi become a new way of doing finance? No one knows but it’s clear many people and institutions want to try it.

Conclusion

All in all, this report from Blockchain.com is really informative, easy to read, and packed with good stuff. They have both a short term and long term positive outlook for Bitcoin specifically and digital assets and blockchain generally.

  • Will Bitcoin become a store of value?

  • Will it become a reserve currency?

  • Will Bitcoin take large value monetary transfer business away from SWIFT?

  • Will it and other digital assets become the hedge people use against the markets and national fiat currencies?

Blockchain.com makes a pretty good argument why any or many of these things could happen.

If you like what you’re reading, you can get this every week.