Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 405

10 quick points on Bitcoin, the wannabe that grew up

In 2014 Bitcoin was a relatively unknown five-year-old digital currency with a market value of just $US6.2 billion. Skip forward to February 2021 and Bitcoin's market capitalisation is now $US1 trillion with an ecosystem around it that includes crypto exchanges and banks, and new offerings into savings, lending and borrowing.

The biggest change with Bitcoin over that time is the shift from it being primarily a retail-focused endeavor to something that looks attractive for institutional investors. In a search for yield and alternative assets, investors are drawn to Bitcoin's inflation hedging properties and it is recognised as a source of 'digital gold' due to its finite supply.

Specific enhancements to exchanges, trading, data, and custody services are increasing and being revamped to accommodate the requirements of institutional investors.

(Here is a two-year price chart of Bitcoin, sourced from yahoo!finance).

10 observations on risks and opportunities

There are a host of risks and obstacles that stand in the way of Bitcoin progress. But weighing these potential hurdles against the opportunities leads to the conclusion that Bitcoin is at a tipping point, and we could be at the start of massive transformation of cryptocurrency into the mainstream.

Here are 10 observations:

1. Bitcoin has become increasingly mainstream and has spurred the creation of a widening ecosystem around cryptocurrency. Growing acceptance on major consumer-focused platforms like PayPal indicate Bitcoin and other cryptocurrencies are expanding their presence in the real world.

2. Perceptions on Bitcoin have evolved from a focus on (1) its ethos-oriented roots as a payment system, (2) to an alternative currency that is both resistant to censorship or interference and stores value to protect purchasing power, (3) to a form of digital gold due to its finite supply (only 21 million Bitcoins can be created). A focus on global reach and neutrality could position Bitcoin to become an international trade currency in the future.

3. Once the domain of retail investors, Bitcoin is increasingly attracting institutional investors searching for yield and eyeing inflation on the horizon. Bitcoin offers institutional investors an inflationary hedge, a portfolio diversifier, and a safe haven alternative to government bonds. In particular, Bitcoin’s value proposition as a form of digital gold fills a niche for both risk assets and inflation hedges in an investment landscape remade by the COVID-19 pandemic.

4. Enhancements to data, exchange and trading, and custody services are emerging to meet the needs of institutional investors. These include the development of Bitcoin derivative contracts and over-the-counter (OTC) crypto desks.

5. Open interest in the Chicago Mercantile Exchange’s (CME’s) Bitcoin futures, a benchmark for institutional activity, surged by over 250% between October 2020 and January 2021.

6. Bitcoin is driving interest and investment into other digital currencies. As such, Bitcoin is becoming the de facto 'North Star' of the digital asset space, with its trajectory being seen as a compass for the evolution of the broader ecosystem.

7. New innovations including the announcement of fiat-backed stablecoins used within private networks, such as the Diem (formerly Libra) initiative, may build pressure for central banks to consider issuing their own digital currencies. China is already experimenting with the use of a digital Yuan.

8. If efforts progress to the actual issuance of central bank-backed digital currency, blockchain would become a mainstream offering. Individuals and businesses would have digital wallets holding a variety of cryptocurrencies, stablecoins, and central bank digital coins (CBDCs) just like they today have checking, savings, and treasury accounts. Connectivity between the traditional fiat currency economy, public cryptocurrency networks, and private stablecoin communities would become fully enabled.

9. In this scenario, Bitcoin may be optimally positioned to become the preferred currency for global trade. It is immune from both fiscal and monetary policy, avoids the need for cross-border foreign exchange (FX) transactions, enables near instantaneous payments, and eliminates concerns about defaults or cancellations as the coins must be in the payer’s wallet before the transaction is initiated.

10. Various concerns over capital efficiency, a lack of protections, and security against hacks and illicit activity, among others, limit the widespread adoption of cryptocurrencies. While security issues have occurred, just 0.3% of the activity in the cryptocurrency space was linked to illicit activity in 2020.

 

Sandy Kaul is the Global Head of Citi Business Advisory Services and Rich Webley is Head of Citi Global Data Insights. Citi Australia is a sponsor of Firstlinks. This information is not advice and has been prepared without taking account of the objectives, situations or needs of any particular individuals.

For more Citi articles and papers, please click here.

 

4 Comments
Grant
May 05, 2021

BTC is the best performing asset in history and the best performing asset every single year for the last 11 years. Its probably ignorant at this point as an investor to stay in denial about it. Nothing wrong with 2% - 5% allocation!

john
April 30, 2021

Think we are underestimating the inventiveness of such as hackers, trojan horses, malware etc and other lesser known and future internet based activities to think that bitcoin cannot be compromised in the future.

Trevor
April 29, 2021

Martin :
Please sir.......I just want to buy an ice-cream .
How many Bitcoin is that ?
.
"A currency in the most specific sense is money in any form when in use or circulation
as a medium of exchange, especially circulating banknotes and coins."
.
As a "currency" Bitcoin doesn't make the grade , does it ? ..................Even in Venezuela !
[In a fascinating move Venezuela, which has been a basket-case economy ever since Hugo Chavez died in 2013, has dropped their national currency (the bolivar) and any ties to the US dollar, and decided to link their national currency to bitcoin instead.]
.
You say : "IMHO the established players in the financial sphere are heading towards a future where whale hunters (prior to mass roll out of electricity) found themselves, redundant."
No ! The whale-oil industry was curtailed by the production of Oil ! Mineral oil ! Texas Tea ! Black Gold !
Gas lighting , "paraffin" or kero were used for illumination , and then eventually electricity [ mostly from coal ].The whaling industry was ended by a shortage of whales and PUBLIC SYMPATHY for their plight !
And again No...it was candle-makers , lamp-makers and wood-cutters that were displaced by electricity.

martin
April 28, 2021

Sandy is missing the elephant in the room with cryptos & in particular de-centralised finance, namely disintermediation. ie removing the ticket clippers in transactions, and thus greatly reducing costs.


Point 9: rebuttal, in its current form BTC is very unlikely to be such a thing, however other stable coins (pegged to the USD) are already taking this place in world trade where domestic currencies are deemed worthless, Venezuale et al.

With USD being printed at alarming rates (see broad money supply for last 12 months) it may well be that BTC will become THE global digital store of value, as it is beyond the reach of governments & their reserve banks.

IMHO the established players in the financial sphere are heading towards a future where whale hunters (prior to mass roll out of electricity) found themselves, redundant.

In terms of cryptoinvesting here in Australia, do not go looking for a financial planner suggesting/offering BTC investments, as it to the best of my knowledge cryptos do not appear on their 'approved lists', yet I wonder if some financial planners hold exposure to these assets themselves.
DCC on ASX has exposure to BTC - as always, do your own research!

 

Leave a Comment:

RELATED ARTICLES

A reluctant investor’s guide to understanding bitcoin

Bitcoin and lessons from speculative bubbles

Does Bitcoin warrant a small allocation in portfolios?

banner

Most viewed in recent weeks

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Latest Updates

Investment strategies

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

Shares

Why the ASX needs dual-class shares

The ASX is exploring the introduction of dual class share structures for listed companies. Opposition is building to the plan but the ASX should ignore the naysayers and bring Australia into line with its global peers.

The state of women's wealth in Australia

New research shows the average Australian woman has $428,000 in net wealth, 40% less than the average man. This takes a deep dive into what the gender wealth gap looks like across different life stages.

Investing

The two most dangerous words in investing

Market extremes are where the biggest investment risks and opportunities lie. While events like this are usually only obvious in hindsight, learning to watch out for these two words can alert you to them in real time.

Shares

Investing in the backbone of the digital age

Semiconductors are used to make microchips and are essential to a vast range of technology and devices. This looks at what’s driving demand for chips, how the industry is evolving, and favoured stocks to play the theme.

Gold

Why gold’s record highs in 2025 differ from prior peaks

Gold prices hit new recent highs, driven by a stronger euro, tariff concerns, and steady ETF buying – all while the precious metal’s fundamental backdrop remains solid amid a shifting global economic landscape.

Now might be the best time to switch out of bank hybrids

In this interview, Schroders' Helen Mason discusses investing in corporate and financial credit securities, market impacts of tariffs, opportunities for cash investments, and views on tier two and hybrid bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.