adoption and use of Bitcoin by traditional investors

February 14, 2024 12:55 UTC+1
| 5 min read

bitcoin masterclass

With the arrival of DeFi and TradeFi and many new protocols, discover in this new episode, with the expertise of Mark Connors, how to process and how Bitcoin is treated and perceived in the world of traditional finance:

Treating Bitcoin as an investment tool

Bitcoin is initially a “buy and hold” asset. But with the rise of DeFi, numerous protocolse crypto loans and borrowings based on Bitcoin appeared. According to Mark, the best strategy would be to bet against Bitcoin and then move towards lending.

“Borrowing against Bitcoin would be the first and easiest, at the right ratio. Because if the asset is owned by the entity, that’s the first step. Instead of buying and holding, or buying the ETF, you have to borrow against it. For what ? Because it then allows income for someone who lends money against an asset. It is a source of income for the bank and it is more stable than when we lend.

So now let’s get to the loan. The “rehypothecation” chain is more complex and I think the whole “borrow short-term, lend long-term” is the one that caused friction last year. So borrow for a long time, lend for a long time, I like that. So that would be the thing to do. I think you start with the loan against Bitcoin, then you enter into a liability asset match on the loan. That would be my suggestion and most certainly, you can do it.”

It is in this context that investors are starting to perceive Bitcoin differently. So how is Bitcoin perceived at traditional investors and traders ?

“There are two camps. The main retail business, when we first issued the Bitcoin fund and ETF in 2020, investors were there, adding small amounts. But to grow that audience, I think we have people who have one listening ear, but not both. These are people who manage several million or several billion dollars, that’s what we’re talking about. There’s a particular conversation within an entity in the US where they said, “I don’t want this pool/custodial, I just want to have a peer for investors.” They want Bitcoin with a CUSIP. I don’t want Bitcoin with a CUSIP, but that’s what TradeFi investors want. So I think if you give this regulatory placement, and if they’ve done enough work to realize that it makes sense then they’ll make a 1-3% allocation. So, they want the ease of liability transfer and they want a DTC transfer system. This, this will lead to great adoption.”

Obviously, few people like too radical changes and prefer to stay in their comfort zone. Traditional investors are no exception to the rule. It is in this context that we will need to bring back tools like CUSIP in TradeFi trading in order to advance adoption among the latter.

How to experience Bitcoin price variations?

The speculation is very often mentioned when we talk about cryptocurrency or Bitcoin around us. However, an investor should receive these variationsfrom a totally different perspective. So how are these sometimes excessive variations in the price of Bitcoin perceived by an experienced investor?

“I think as a community we need to get stronger about the risks and say things. After last year with FTX, I think it was on Coindesk where a few companies got together and did the research and said “we screwed up”. We have not monitored the growth of our industry. Because if we did, we would have seen on Etherscan that the FTX deployment wallet gave $4 billion in June to the Alameda 24 wallet.

And I’m going to go into detail here for a second. The FTX scam was there before our eyes. For past scams in history, you couldn’t see that, it was opaque. But in the blockchain you can see how the actors act. So there is a policy that will help us move forward. Data/sources! Don’t trust us. If we speak with the SEC, we will provide the link to the SEC and you validate it. It is an emerging technology and asset. It is slowly being adopted by regulations. It works smoothly because the volatility is such that you can lose confidence because it’s more volatile than the other asset you know. So, sourcing and data first.”

It is moreover Larry Fink the boss of BlackRock, who decried Bitcoin as being a speculative tool and a collection for money laundering. According to Mark, Larry Fink won’t be the only one to change your mind about Bitcoin as an investor.

“I think people like Warren Buffet are going to have their feet tied before they say anything. But I don’t think we need many more of these people. I think when people do the 10 hours of work it takes to understand and realize all the FUD about all the criminal use that is incomprehensible, about the mining industry where Dianel Batten is doing incredible work. Have you seen how Cambridge revised all their data on miners’ energy uses? And they said, sorry we didn’t take into account that the platforms are more efficient and they backed up the last three years of data to say that they are 16 to 18% more efficient than we thought so. So, everyone is behind on that. With Bitcoin ETFs, people are going to do the work and their research and it will be the second phase of buyers.”

Now that the Bitcoin ETFs are approved, these investors will then ultimately have to take an interest in this emerging technology. Technology always evolves quickly and very often exceeds predictions. Like when the Internet was just starting out. Very few believed in itand yet, it is what it is today: a technology adopted by all.

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