Hyperbitcoinization is “the belief that eventually all goods and services will be priced in bitcoin instead of dollars”
To put it more simply, it’s the financial equivalent of mp3 fully replacing vinyl; The Internet replacing print media.
Like the Internet, widespread adoption drives improved usability, which in turn drives more adoption. This article investigates a critical group of users who currently cannot adopt Bitcoin, and who are therefore an obstacle to hyperbitcoinization until they are addressed.
The Bitcoin adoption curve: where are we now?
On May 3 this year, the most detailed meta-analysis yet of global Bitcoin adoption, revealed that 4.7% of the world now use Bitcoin. These are our “early adopters”.
But there is a community of people who mostly cannot use Bitcoin at all. This just happens to be the community who buy Bitcoin at the largest volumes and who therefore have the most impact on Bitcoin price.
These users are the world’s Sovereign investment funds. These are funds that hold the wealth of Nation States. Also called State Owned Investors (SOIs), they manage 51.5 Trillion in assets and comprise three distinct entities
- Sovereign Wealth Funds (SWFs)
- Public pension funds (PPFs)
- Central Banks (CBs)
Not only do they control gargantuan sums of money, but their total AUM has more than tripled since 2004.
Central Banks will not put Bitcoin on their balance sheets any time soon. However the PFs and SWFs could, and they hold $35.7 Trillion in AUM. Just this week the world’s first Pension Fund revealed it had acquired almost $100M in Bitcoin through Blackrock’s iShares ETF. The move has started.
The problem is, one early adopter does not mean mainstream adoption will follow. In 2021, El Salvador became the first nation state to make Bitcoin legal tender. Three years later, none have yet followed. Also in 2021, MicroStrategy became the first listed company to add Bitcoin to its corporate treasury. Three years later no listed companies have yet followed.
The Obstacle
Bitcoin is currency and money. But it is also a technology, subject to the same “crossing the chasm” rules as other disruptive tech. The chasm between early adopters and early majority is discussed in Geoffrey Moore’s book by the same title.
Our immediate goal should be that Sovereign funds excluding CBs invest on average 1% of their 35Trillion AUM, or $350 Billion into Bitcoin. At today’s “Market Cap Gain Per Dollar Invested” of $4.54, this would raise Bitcoin’s market cap by $1.59Trillion, revaluing Bitcoin at $148,400.
The name of the chasm that Bitcoin must traversed is called “ESG Investment Committee”. Here’s why…
Take Sovereign Wealth Funds.
You may be surprised to see that the largest SWF in the world comes from Norway.
The Chief Investment Officer, Real Assets of Norway’s Pension fund, Mie Holstad, said in a recent interview that “before any acquisition, the fund screens potential targets for ESG risks.” Norway’s sovereign wealth fund is no anomaly.
Kevin O’Leary who spends much time talking to sovereign funds, said the same thing:
“Let’s say I’m talking to a sovereign fund, they have $500 billion, and they want to deploy into crypto for the first time, they’re going to put a small weighting, 1%. The reason they haven’t done it yet is not because they’re having a debate about whether they want to. They want to. But they have … an ESG committee, which determines which assets get to the investment committee first, because every single asset is viewed with that particular sovereign fund by the merits of sustainability.” Source
While in the last three years the narrative around Bitcoin mining has improved substantially, the mood of regulators to prevent SWF and PF investment into Bitcoin has not. In fact if EU is a guide, it’s gotten worse.
In EU, ESMA with input from ECB, is going through a submission process, the end result of which could be the incorrect labelling of Bitcoin as a climate risk. If this labelling were adopted, this would add a strong headwind for $10.5 Trillion in EU SOIs being able to invest anything into Bitcoin. This could also conceivably set the tone for SOIs in these other geographies to follow.
Total SOI fund AUM by Geography. Source.
Removing the Obstacle
It’s not rocket science. We must start engaging directly with ESG Investment Committees.
By approaching Pension Fund by Pension Fund, SWF by SWF and talking their ESG Investment committees through their reservations we can turn them around, one fund at a time.
A hundred million here, a billion there, fund by fund, we can accelerate Sovereign Fund adoption of Bitcoin.
Who’s qualified to do this work? Well, it’ll be a team effort. But I’ve been asked to kick it off. So I’ve started a geyser project that you can get behind if you think it’s a good idea too.
Daniel Batten is a Technology Investor, Author and Entrepreneur
This article was originally posted in the Bitcoin ESG Forecast, which goes out to ~1000 subscribers each month. One in five of these articles goes public after two months. If you want access to timely research like this on a regular basis, you can subscribe here.