The great Bitcoin leap forward

Digital currencies such as Bitcoin and Ethereum are rapidly becoming more appealing not only to the high net worth individuals but also to an emerging generation of tech-savvy individuals.

It appears digital currencies are shaping the future of global finance.

 Crypto influencers like Elon Musk and Jack Dorsey have helped spur some hype but also added price volatility in the process.

Bitcoin is the most popular and enthusiasm around the coin has been striking because libertarians are not the only ones talking it up. 

Some of Wall Street’s finest have joined them. Larry Fink of BlackRock, the world’s largest asset manager, said in December 2020 that Bitcoin could become a global market. Big hedge funds such as Renaissance Technologies have also been punting on cryptocurrencies. 

More recently, El Salvador’s president, Nayib Bukele has announced that he is going to send a bill to the legislature to make Bitcoin a legal tender in the country.

This will be a major milestone as it will be first country to formally adopt the cryptocurrency as part of its economy. 

Bukele said the country is partnering with digital wallet company, Strike, to build modern financial infrastructure using Bitcoin technology.

The Republic of El Salvador is a country in Central America and has a population of approximately 6.4 million. It is estimated that 70% of the population is unbanked whilst 20% of the country’s GDP comes from remittances. According to Bukele, Bitcoin could help streamline cumbersome cross-border payments while promoting financial inclusion for those left out of the system. 

Meanwhile, business analytics company MicroStrategy Inc. has announced that it will be borrowing US$400m junk bonds to buy more Bitcoins.

The new notes due in 2028 will be backed by claims on the businesses and other digital assets.  That said, MicroStrategy said it expects to post a US$284.5m loss on the back of fluctuations in market prices. 

MicroStrategy owns more Bitcoin than any publicly traded company, but asset manager Grayscale owns tokens estimated at more than US$24bn. That said, there has been concerns that the token’s volatility makes it an unreliable store of value despite increased investments from corporations such as MicroStrategy, Tesla and billionaire Jack Dorsey’s Square. 

As Morgan & Co Research, we have maintained a view that Bitcoin can work in Zimbabwe. Remittances are the second-largest source of foreign currency inflows into the economy.

This presents an opportunity for merchants and fintech companies to move in to disrupt the system by driving the adoption of Bitcoin. The advantages over traditional payment methods are lower costs and speed.

There are no bank holidays, no borders and no imposed limits when it comes to Bitcoin. In addition, a large share of the diaspora community is educated enough to easily adopt Bitcoin. 

There are also several reputable Bitcoin exchanges or wallet companies in the UK and South Africa such as Luno that facilitate Bitcoin and Ethereum payments. Bitcoin can also provide electronic payment services for users who lack access to traditional financial services in remote parts of Zimbabwe.

 In a new world order that is driven by technology, the internet and digital currencies, we believe there is a strategic logic to invest in disruptive fintechs such as Cassava. We rate the stock LT BUY

Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com

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