What is Bitcoin for? With a raft of recent announcements from big-name financial firms offering bitcoin (BTC) products, institutionalization of the biggest, most significant cryptocurrency looms. That will give urgency to this perennial, still unresolved question about its purpose. Is bitcoin an alternative store of value, like gold, whose price to dollars is driven by its appeal as bulwark against monetary debasement in fiat currencies? (We could call this the Michael Saylor perspective.) Is it a payment vehicle for people who are, for whatever reason, locked out of the financial system? (The El Salvador perspective, perhaps.) It is in an activists’ tool, a mechanism for challenging power? (The Human Rights Foundation perspective.) Or is it best thought of with a more open-ended mindset, viewing it as an unstoppable record-keeping platform onto which users can inscribe a wide range of valuable content? (The Taproot Wizards’ perspective.) I like to think the answer is “all of the above.” But if the U.S. Securities and Exchange Commission (SEC) approves BlackRock’s, or WisdomTree’s or Invesco’s newly submitted exchange-traded fund (ETF) applications – admittedly a big “if,” given the SEC’s past stubbornness – and if it shows support for the new EDX crypto exchange from Fidelity, Charles Schwab, Citadel and other financial heavyweights, that liberal, anything-goes framing will likely get less airtime. The financial advisors pitching these products to mainstream clients are going to want a simple story to tell. The question is: which one? Inflation hedge? Perhaps the most honest route is just to describe bitcoin as an uncorrelated asset, whose price over time moves independently of other assets, offering more stability to a diverse portfolio of assets, preserving value when stocks, bonds or commodities are down. But that’s going to be unsatisfying to financial advisors and their Main Street clients. While they’ve by now been well trained to think in terms of diversification and hedges against risk, there’s usually an underlying event-driven story behind it. For example: when a recession looms and projected earnings fall, the decline in value of your variable-income stock holdings will be balanced by exposure to fixed-income assets such as bonds. This is where the “inflation hedge” story for bitcoin is usually applied. But it’s not an easy one to tell. The cryptocurrency’s losses in 2022, as inflation kicked the global economy’s butt, defied the popular, short-term understanding that an inflation hedge instrument’s price should rise when consumer price rises accelerate. On the other hand, with a long-term perspective, the bitcoin inflation hedge narrative holds up. With a 150x gain over the past decade, bitcoin has helped long-term holders offset the ongoing depletion in the dollar’s purchasing power more effectively than any other investment that was broadly available to them. The problem is the financial industry wants a short-term story – after all, financial professionals are typically rewarded on the basis of quarterly results. It wants to be able to say that if X does Y, then bitcoin will do Z. And it’s just not that predictable. Nonetheless, I suspect Wall Street will gravitate toward the Saylor perspective. It needs to find a story of some sort – although many ETF investors might happily place “number go up” bets on bitcoin without caring why its price should rise, this heavily regulated industry can’t frame things as naked gambling – and the long-term store-of-value idea the most palatable one. | 