Are we overestimating Bitcoin’s future or underestimating its risks? Imagine a world without central banks — no Federal Reserve, no Bank of England. Would our financial system be more resilient or more chaotic?
For centuries, economies have evolved through trial and error, balancing trade-offs between stability, growth, and innovation. In earlier times, the money supply expanded with gold production. The more gold mined, the more money circulated, the richer and better off we became. But was it really that straightforward? Our modern monetary system isn’t perfect, but it is designed to handle complexity.
Today, many advocates for cryptocurrency, such as Satoshi Nakamoto, criticise the traditional financial system for its heavy dependence on trust, asserting that this reliance leads to currency inflation and financial instability by central banks.
Bitcoin’s main goal is to lessen dependence on traditional banks and create a trustless, borderless system. It sounds great in principle.
Governments around the world are also actively developing regulatory frameworks to balance innovation, risk and security in the digital asset space. The US aims to become a global crypto hub and appointed a White House AI & Crypto Tsar. The Federal Reserve, for instance, is exploring Central Bank Digital Currencies (CBDCs), though full deployment remains years away.
As Satoshi Nakamoto said in the white paper, “The current financial system depends heavily on ‘trust-based’ institutions. Online commerce mainly uses these institutions as trusted third parties to handle electronic payments. Although this system generally works for most transactions, it still has fundamental flaws such as vulnerabilities to fraud, censorship, and mismanagement.
I agree with Satoshi Nakamoto that it’s unfair for the government to use taxpayer money to bail out big banks during financial crises, especially when those banks’ reckless behaviour contributed to their problems.
This is where Bitcoin’s appeal grows — as a potential hedge against inflation and government mismanagement.
However, central banks do not print money in the simplistic way many believe; they manage reserves while commercial banks expand the broader money supply through lending. This process, alongside interest rate adjustments, helps regulate inflation, encourage productivity, and maintain employment. Rather than simply increasing currency volume, central banks take a nuanced approach to stabilising economies.
Like gold, some see Bitcoin as a hedge against inflation and the flaws of fiat money. It has held up so far, but that doesn’t mean it’s immune to bubbles that mutate and spread across all markets and become systematic risks in the long run.
So, how should we measure the true value of money?
Should we compare currencies directly or consider earning power?
Consider the British pound. It has lost nearly 70% of its value over the last 40 years due to inflation. But has everyone become poorer? Not necessarily. People who invest wisely — buying property, stocks, or businesses — tend to outpace inflation and build real wealth.
A more meaningful comparison might involve the value of your labour. Are you earning enough to keep pace with inflation?
Sometimes, it’s simpler to blame governmental policies, but perhaps we should also examine our own responsibilities. Have we kept our skills relevant in a fast-evolving world? Have we efficiently allocated our resources to secure better returns?
People who allocate their resources very well have become wealthier – their wealth has kept up with inflation. For example, a person who bought a house 40 years ago still owns the same house today, but its value has likely increased based on inflation.
We don’t directly exchange an hour of labour for goods at the supermarket. Instead, we need a medium of exchange — like fiat currency — which effectively facilitates transactions.
Bitcoin has proven secure, easily transferable, and capable of holding value over time. Over the past century, gold has maintained its purchasing power, while major fiat currencies have depreciated significantly.
Bitcoin, despite its security and decentralisation, faces hurdles. Its fixed supply of 21 million coins may lead to deflationary pressures, discouraging spending and slowing economic growth — one reason why the gold standard was abandoned.
Moreover, Bitcoin lacks intrinsic value. Lose your key, and your wealth is gone. It’s also highly volatile, dictated by speculation, supply and demand and shifting regulations. While some see this as an advantage, it makes Bitcoin impractical for daily transactions. Most consumers prefer fiat currency’s stability, convenience and perks like cashback rewards.
Our complex economy needs adaptable monetary systems that can grow with GDP, flexibility the crypto market lacks.
The launch of Bitcoin ETFs has been a huge success, pulling in over $100 billion in assets. But with more institutional money flowing in, Bitcoin’s wealth is becoming more concentrated. Early adopters — like ETF providers, Satoshi Nakamoto, Binance, and MicroStrategy — stand to benefit the most. If President Trump approves a strategic Bitcoin reserve, even more buying could push prices higher, further amplifying this imbalance.
Ethereum, Solana, and multi-asset crypto ETFs are likely coming next. Crypto adoption is growing fast, with over 17 million daily active users.
Stablecoins, in particular, are becoming a major payment method — processing more transactions globally in 2024 than Visa and Mastercard combined.
Like any other currency, Bitcoin trades against USD, GBP, and others, so its value constantly fluctuates. In most cases, you’ll need to convert it into your local currency to spend it.
However, Bitcoin comes with risks. If you lose your Bitcoin on an exchange or in a bank, getting it back is unlikely. Many exchanges have failed or been hacked, resulting in lost funds. Since transactions are irreversible, fraud and theft — like we saw with FTX — can lead to permanent losses.
Additionally, Bitcoin is classified as an asset rather than a currency, which can create tax complications for investors.
And let’s not forget the competition. Alternative cryptocurrencies like Litecoin offer faster transactions, while privacy-focused options like Zerocash aim to address security concerns.
Tech giants — Apple Pay, PayPal and traditional banks — are integrating digital payment solutions, making Bitcoin’s widespread adoption even more uncertain.
The broader adoption of cryptocurrencies by large institutions lends momentum to their price. However, since the U.S. election, we’ve seen the values of digital assets skyrocket, underscoring the unpredictable and thrilling nature of this market.
Bitcoin operates without a central authority, making it difficult to verify user identities. This has made it appealing for criminals, as recent investigations have uncovered global networks using digital currencies to bypass sanctions.
In the UK alone, over £100 billion is laundered annually, with around £5 billion linked to cryptocurrency, according to the NCA. On a global scale, $22.2 billion was laundered through crypto in 2023.
Despite these concerns, figures like BlackRock CEO Larry Fink suggest Bitcoin might one day rival established asset classes such as the US real estate market. But should we trust these projections, especially when institutions continue to profit regardless of the outcome (skin in the game)? As Howard Marks eloquently states, the allure of quick gains, fear of missing out, and the influence of the crowd can lead to frequent and costly mistakes — particularly in market extremes especially if you can’t calculate the downside risk.
In the U.S. public debt has skyrocketed to $35.7 trillion, making up 122% of GDP. But is Bitcoin the answer to the growing debt problem in Western countries? Bitcoin is only 16 years old — a fraction of gold’s 5,000-year history. According to the Lindy effect, its future longevity depends on its ability to survive and prove its worth over time. The biggest question is, will Bitcoin stay on top, or will a new wave of cryptocurrencies take its place? For now, Bitcoin remains a bold idea with an uncertain future. Will it be digital gold or just another speculative asset? At the time of writing, the market values Bitcoin at $98,125. My view? The future will be the ultimate judge of its real value. But to me, it shares many traits often seen in a bubble. However, the community have a strong belief system or cult that only associates with their ideologies like Elon Musk cultists who invest in anything Elon touches such as Dogecoin. It’s difficult to bet against this narrative as it’s not a technology but a belief system.
Awet Ghirmay, Head of Investment Research
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
