We humans can be a stubborn bunch and it's often said human behavior doesn't change much. For fans of market history and related quips such as “history doesn't always, but it often rhymes,” there you have it.
In financial markets, what happened in the past can be instructive today and tomorrow because human emotions – particularly the powerful ones like fear and greed – don't change much. Alright, I admit I'm not a psychologist (I did one psychology class in college, got an “A), but all this human emotion/evolution is relevant to one of today's hottest assets: Bitcoin.
As has been noted time and again since Bitcoin started going mainstream, integral to the investment thesis is adoption. Whether it's institutional investors, companies, retail market participants or the digital asset becoming a more widely accepted form of payment, those factors and others are vital to not only supporting near-term prices, but the long-term reasons to engage Bitcoin as a portfolio holding.
However, it's human nature that's getting in the way of Bitcoin adoption.
Before sounding alarm bells, I'll back up a moment and say there are 2.31 million Bitcoin left to be minded and it will take about 12 decades for that supply to be minded. The circulating supply is currently 18.69 million and that's pretty good on a percentage basis.
Not all of that is circulating, per se. It's held by long-term retail investors (HOLDRs) or institutional players that may whittle down stakes here and there, but by and large are holding the cryptocurrency with expectations current price levels will eventually look cheap.
Noting that Bitcoin is often referred to as “digital gold,” it's worth remembering that gold faced a steep adoption curve of its own – one Bitcoin is likely outpacing.
“Going back a few thousand years, there were no global real-time trade or communications technologies to foster transactions or information sharing,” writes Osprey's Phil Pearlman. “There were no proxies like futures contracts or exchange traded products. Not to mention all of the craftsmen, merchants, and politicians who would need to gain exposure to and interact with others who had adopted the metal. It must have taken a long time.”
One way of looking that paragraph is that humans are indeed the biggest barrier to Bitcoin adoption. Think about it this way: Raise your hand if you missed out on a great stock because you felt the company provided a “dumb” product or service no one would want. Those that didn't raise their hands are lying.
I know I'd raise my hand if that question were posed to me. When I was in my late 20s and started hearing friends talk about Facebook, I really did say “That's dumb. Who wants to see your pictures and see where you're checking in or eating dinner?”
Everything Facebook rubbed me the wrong way, whether it was the selfies, Mark Zuckerberg himself or my perception that Facebook was a platform for the most vapid among us. Obviously, I didn't buy the IPO. Point is my cognitive biases got in the way of a great opportunity. As Pearlman puts it, that's an example of cognitive rigidity and it's likely at play in the Bitcoin universe today.
“People differ in their abilities to shift thinking even as new information arises. We can think of this on a continuum from flexible to rigid,” he opines. “People who are too rigid might be less open to new ideas, ways of doing things, and technologies. They’re stuck in their ways.”
It Pays to Be Flexible...Literally
History is on Bitcoin's side when it comes to adoption because nearly every revolutionary technology or financial instrument was met with skepticism in its infancy. Think anything from gold to the wheel to flight to email.
In other words, some investors may choose to reside on an anti-Bitcoin hill and find it's no more than a house of cards. So advisors should introduce flexibility into Bitcoin conversations with clients.
“Human cognitive limitations might slow the adoption of anything new, from ideas to technologies, though it can be difficult to parse them from rational skepticism,” adds Pearlman.
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