Uncertainty Reigns — Will Bitcoin?

Bitcoin is the Rashomon of the payments industry. If you’re unfamiliar with that cinematic allusion, simply put, just what bitcoin is is determined by where you are sitting and the views you hold in terms of the intersection between payments and technology. Perhaps the time is ripe as never before for talking about when and why to invest in blockchain assets, AKA bitcoin, in the wake of an election that has injected uncertainty into just where the United States may be headed in terms of fiscal and monetary policy over the next four years.

In the latest Topic TBD installment, Alex Sunnarborg, founder of Lawnmower, which is focused on investing in blockchain assets (and bitcoin), said that the closer Trump moved to cinching the election, the more that bitcoin-related assets saw a rally, as did more traditional stores of value, such as gold. That surge, said the executive, would make sense, since bitcoin can be seen as an asset that stands apart from traditional government-backed currencies and thus can be seen “as a hedge against broader macroeconomic and political uncertainties.”

But bitcoin has also seen sustained rallies in the past several months, perhaps most notably on another surprise vote that took place this summer — i.e., Brexit.

As for the continued controversy as to whether bitcoin is a currency or an asset that investors choose due to attractive appreciation potential, Sunnarborg said that “trying to label it — is it a currency, is it a commodity, is it an asset — is a bit confusing” as it does not necessarily fall neatly into categories. But, as he noted, bitcoin does work well as a currency, stating that “you can use it to pay a merchant. If they accept bitcoin, you are not going to have to pay credit card processing fees.”

Well, only if they accept bitcoin, which most don’t, Karen Webster pointed out, and who pay other fees instead. After all, let’s call a bitcoin a bitcoin.

Bitcoin, in another use case, he said, can be used for remittances, avoiding the fees levied on those fund flows, while settling in the receiving parties’ wallets in just minutes and for charges that amount to just a few cents, said Sunnarborg. As for the investment rationale, he noted that the likening of bitcoin to gold comes in part due to the limited supply of the cryptocurrency. Investors in bitcoin, Sunnarborg told Webster, have enjoyed a rapid appreciation from $230 when Lawnmower launched in April 2015 to north of $700 today. At the same time, he added, investors have been, in Lawnmower’s experience with users working with the firm’s app, relatively steady in their buying, with many acting as passive investors, with commitments to buying bitcoin regardless of the price, on a weekly or monthly basis.

But with a nod toward the volatility of bitcoin, Sunnarborg stated that, in day-to-day transactions, some merchants may elect to transform their payments made in bitcoin almost immediately into fiat currency. In one example discussed by Webster and Sunnarborg, regions beset by wild currency volatility — say, in Latin America — may find bitcoin attractive, as it can be more stable than sovereign currencies, depending on the country.

(They also like the dollar, too, Webster pointed out.)

The majority of the Lawnmower user base — as much as 80 percent — is between 18 and 45 years old, said Sunnarborg, living in San Francisco or New York, working in the tech industry more often than not. And, added Sunnarborg, these individuals are quite comfortable managing their own wealth and using apps to do so.

Webster brought up the concentration of bitcoin mining in China. Yes, said Sunnaborg, “there is probably about 90 percent plus mining concentration in China … and a lot of trading volume is also concentrated in China.” While Webster cited concerns over that for many reasons, Sunnarborg brushed it off. “I’m not so much concerned about that,” he said, and added that there are some concerns among other industry stakeholders about what might happen should the Chinese government step in.

Security remains top of mind, despite the speculative investment, yet Sunnarborg stated the incidences of tumultuous downdrafts in the currency are tied more to the exchanges and companies and not the bitcoin protocol. “In the early days, the markets were pretty immature, and the security protocols were still in their infancy … and consumers losing their deposits was terrible.” But since those early days, he said, security measures have increased and improved markedly. And, he added, the cryptocurrency need not be the purview of exchanges alone in a world where users can “buy a bitcoin and send it to your own wallet that you control.” In recent months, crowdfunding activities have adopted various forms of cryptocurrencies to raise money, to the tune of millions of dollars, said Sunnarborg.

Turning to Lawnmower itself, Sunnarborg stated that the firm’s strategy is one where it does not touch consumers’ funds directly but that it relies on Coinbase to do so, noting that the latter firm is highly regulated and has investors on board that include the New York Stock Exchange. “We help investors set up an account in the background and produce analytics on your account,” and in essence, said the CEO, Lawnmower creates investment tools that also help with education for investors.

For the investors themselves, allocations to cryptocurrencies can extend from 10 percent to well above that level as a percentage of portfolios. Pressed by Webster as to bitcoin’s price level by the end of 2017, Sunnarborg said he’s less focused on price per bitcoin as market cap of the asset. For that, he feels that bitcoin could be a market cap of as much as $50 billion — nearly five times the $11 billion it stands at today.

That suggests a lot of volatility that most investors would rather not see.