Visualising the path of Bitcoin adoption – Past, Present & Future

One of the most remarkable points taken from the most recent Bristol (UK) Bitcoin meetup was an excellent diagram/concept (which I will share with you shortly) from Javier Marti, CEO of Bitcoin Global Investments who hosts and sponsors the meetup.

The diagram itself provides an interesting overview& timeline charting Bitcoin adoption from its conception back in 2009, to present day, as well as a potential scenario for future adoption.

Most importantly it puts focus on the ‘requirements’ needed to facilitate Bitcoin adoption, with user groups that have yet to participate or invest in Bitcoin.

 In addition, it is particularly useful as an insight into the technology investment cycle, such as the process of technology adoption and various investment stages that drives this growth.

I have added observations on investment risk at each stage of adoption, annotations on key events and contributed partly to the requirements which I believe each user group will need at each stage.

Visualising Bitcoin Adoption:

Bitcoin adoption Chart(Click for larger Image)

Geeks, Nerds, Techies, Smart money:

As with all new technology, due to its complexity, it is always the most technologically literate and those that have the most interest in new technology that become the initial adopters.

Bitcoin is no exception and we can see from the diagram that so called ‘geeks’, ‘nerds’ and cryptographers followed by I.T professionals ‘techies’ were the first to work on, develop and invest their time and resources into Bitcoin. These are the first user groups to understand Bitcoin’s huge potential, along with smart money and investors of a libertarian/anarchic capitalist persuasion. These investors see Bitcoin as a currency that directly fits in with the libertarian ideology and a move towards the Austrian economic frame work for how markets should operate.

Investment risk: Extreme/Very high

  • Experimental protocol,
  • No social proof of acceptance,
  • High opportunity costs,
  • Greater threat of 51% attack,
  • Potential threat from government agencies in early stages, Very high volatility.

Venture Capital (VC’s), Bitcoin Businesses/services

The previous user groups drive adoption and market value to a point where (VC) looking towards Silicon Valley in particular for investment opportunity start to take note.

The VC tipping point came in early 2013 when the Bitcoin market spiked to $260 aided by the Cyprus bank bail-ins.

(Figure 1) taken from the ‘CoinDesk’ State of Bitcoin Q2 2014’ report, (1), shows  that from this time period in 2013, VC capital increased 1200% YOY and the number of VC-backed startups increased 700%.

VC investment - visualising the path of bitcoin adoption

Following the influx of VC capital is the creation of Bitcoin Businesses and services that provide platforms that make it easy for early adopter investment and for merchant adoption to take place.

 Investment Risk: Very highHigh

  • Young protocol and growing need to keep up with scalability,
  • Increased risk from legacy financial system lobbyists and government regulations due to increased profile,
  • speed of innovation,
  • Competition from alternate protocols/coins.
  • Potential for revenue streams and cash flow to partly offsets risk.

Merchant Adoption

All the prior stages of adoption has led to and facilitated a massive increase in merchant adoption. This has been especially rapid due to companies like Bitpay and Coinbase that can mitigate the volatility risk of accepting bitcoin by converting transactions back to fiat currency almost instantaneously.

(Figure 2) also taken from the ‘CoinDesk State of Bitcoin Q2 2014’ report, (1) highlights this rapid expansion.

Merchant adoption - Visualising the adoption of Bitcoin

It was estimated in market commentary that at the beginning of 2013 there were only 1000 companies accepted bitcoin payments and this grew to an estimated 10,000 towards the end of 2013. Already by Q2 2014, we have seen this number balloon to around 63,000 and the number is now estimated to already be around 80,000+ as we near the end of Q3. In addition to this the acceptance by large Merchants such as Dell, Overstock, DISH, Expedia and the recent announcement of ebay subsidiary Braintree and Paypal will be providing their clients with a way to integrate Bitcoin merchant processing has the potential to bring in other major retailers into the Bitcoin economy.

Investment Risk: Low*

  • Instant conversion back into fiat can mitigate high risks of holding Bitcoin.
  • Easy to integrate relatively small opportunity costs.

The ease and rapid growth of adoption by merchants it could be argued, is arguably one of the main contributors that has led to the continued downward pressure on the market price in 2014 due to increased sell side pressure on the exchanges as merchants convert their bitcoin transactions back to fiat currency.

This raises the question, when will the next wave of user adoption occur to offset the current sell side pressure?

And what are the requirements needed in order to bring in the new user groups to facilitate this?

Users/Retail Investor adoption:

It must be noted here that all potential future Bitcoin adoption patterns are speculative due to the large amount of potential ‘Wild Card’ scenarios listed in the chart that could have a significant positive or negative affect on the market price.

Bearing this in mind, let’s take a look at some of the requirements we can expect will be needed to bring in adoption from general users and retail investors:

Requirement 1: Need for Bitcoin

It could be argued that the vast majority of the general public simply doesn’t see the need for Bitcoin at the present time. One of my previous articles Bitcoin V UK Retail Banking- David and Goliath’ highlight’s that despite the many advantages of Bitcoin (well known by the Bitcoin community as a whole), the current retail banking system still provides a low cost transactional network that meets the day to day requirements of most of the general public, especially with regards to domestic payments.

Add to this a profound level of cognitive dissonance & lack of understanding to the extreme level of fraud and risk in the legacy financial system and you have a largely disengaged public; a public that are dangerously unconcerned about investment or future wealth preservation.

However, there are 3 major uses of Bitcoin we have identified that we believe will fuel the need from this user group in the future. They are the following:

  • Inflation hedge against the debasement of fiat currency.
  • A way of mitigating counterparty risk to the extreme leverage and risk in the current banking and financial system.
  • ZIRP/NIRP (zero or negative interest rate policy).

All three reasons stated above are becoming more and more prevalent.

The Cyprus Bail-ins in 2013 was a prime example of counterparty risk and a major contributor to the April 2013 Bitcoin price surge. In addition we are seeing the continuation of long term ZIRP; and now NIRP is looking to become a growing trend (2). This means not only will depositors fail to get any meaningful interest on savings and deposits to offset inflationary pressures of fiat currency. But they may soon find themselves being charged simply for depositing in the first place. This makes holding any form of fiat currency increasingly undesirable in the long run and may help spur people into alternate holdings of inflationary hedge assets and alternate currencies.

Requirement 2: Trust

Another need that Javier Marti identified as a prerequisite for adoption from this user group is trust.

Key areas of trust that are required:

  • Trust that Bitcoin as a currency has longevity.
  • Trust in the infrastructure/core protocol.
  • Trust in the security of key services built around the core network (e.g wallets and exchanges)
  • Trust that potential government legislation will not have a terminal detrimental impact upon the practicality of Bitcoin as an investment/currency.

Despite a series of events in 2014 that damaged the trust requirement of Bitcoin to this user group, the most prolific of which being the loss of Bitcoin from ‘Mt.Gox’;  the notorious crack down on financial services in China and their restrictions on Bitcoin involvement; and the recent ‘BitLicense’ proposals from the NYDFS.

There are many reasons to be optimistic that the ‘trust’ requirement will continue to grow.

Firstly, the Bitcoin protocol is now approaching the 6 year mark and whilst still young, every day increases the perception that Bitcoin has a solid framework to become a competing transactional network. Coupled with the fact that large household names such as Dell, Paypal, Expedia, Overstock and DISH are also adopting the technology, gives much needed credence that Bitcoin will have longevity.

Secondly the bankruptcy of Mt.Gox has led to an increased implementation of auditing for the exchange services, pushed by user demand for proof of holdings.

Thirdly, whilst some jurisdictions have been draconian with their approach to Bitcoin regulation, there are 200 competing sovereign states and the UK in particular, has currently had a hands off approach to Bitcoin regulation; and is taking real interest in its innovative potential.

Another key factor that must be taken into account when looking at trust as a requirement for Bitcoin adoption, is the loss of trust in the current financial system and with the governments that regulate these institutions.

 In the last 6 years since the financial crisis, we have seen little meaningful reform in terms of regulation, deleveraging or accountability for the 2008 crash. As a result it’s been well documented that trust in the banking system has hit all-time lows; barely a day goes by without new reports of fraud and manipulation.

As a result of this and the negative impacts of monetary policy on the economy to compensate for the extreme leverage;  governments are increasingly desperate to raise tax revenues to fulfil interest payments occurred through the monetised debt from these policies.

In essence you now have a general public waking up and finding themselves stuck between a predatory Banking system and desperate governments.

This is an observation that Javier Marti highlighted in a recent conversation, he stated:

“ You have banks on one side, governments on the other, and the common citizen in the middle. This will create pressure that will make more and more people escape into Bitcoin”

A recent article by Siri Srinivas from the Guardian ‘Americans Chased by IRS give up citizenship after being forced out of banks accounts’ (3); highlights some of the consequences the pressures that both of these entities can have on American citizens in particular.

The article focuses on the Foreign Accounts Taxation Compliance Act (FATCA) and how its pushing foreign banks to reduce cooperation and services with American Expat’s; acts that could lead to loss of trust in the banking system and increased adoption of Bitcoin as a viable alternative.

Siri Srinivas writes:

“Steep penalties add muscle to the law. If a foreign bank – not just in Canada, but anywhere – fails to report even a single US citizen as a customer to the IRS, the US Treasury department would withhold 30% of the banks’ US income as penalty.”

“Scared of running afoul of US banking laws, foreign banks are taking extreme steps to limit US citizens to a narrow range of services. The result for expats has been a chaotic brew of closed bank accounts, mysterious excuses and a scramble to find local banks that would allow them to park their money.

 Increasing amount of these actions, could lead to a pivotal point where the trust in Bitcoin begins to exceed the current trust in the toxic relationship between big finance & government .

Trust - Bitcoin V Gov Banks


Requirement 3: Opportunity\ Ability to invest

Another key requirement that Javier, notes for this user group, is the prerequisite of having the ability and opportunity to invest in Bitcoin.

It is very easy for established, long term or early investors to take for granted the skills and knowledge needed to understand, facilitate and safely secure bitcoin holdings.

Without outsourcing these services and paying a premium, it requires a certain level of technical aptitude that most members of this user group do not have.

In order for this to change, retail investors and general users need highly refined user interfaces and applications that greatly reduce technical barriers for adoption.

There are two significant areas in particular that are looking to address this requirement:

  • Institutional/Retail Investment funds
  • Bridge services (Circle, Wallet providers, Merchant processors)

The first, (which I annotated on the chart) and could be of great significance are retail investment funds.

Bitcoin investment funds such as OEIC’s and ETF’s will provide an easy way for retail investors to gain exposure to Bitcoin in a way that’s familiar to them and generally has more liquidity than bitcoin holdings stored in hot or cold wallets. These funds can provide an investment vehicle that removes all technical knowledge required to store the bitcoins; which partly offsets the negatives of centralised risk and service premiums.

Secondly, the increase in professional bridge services such as ‘Circle’ that provide general users with a way to exchange, transact, store and Bitcoins through one simplified user interface (UI); have the potential to drive adoption from this group. Whilst the centralisation of these services comes with a risk, it has the potential to provide a stepping stone for general users, before the same level of services can be provide in a decentralised manner.

Requirement 4: Utility

 The condemnation of Bitcoin as a viable currency is evident almost daily through the Main Stream Media (MSM).The main reasons stated, are always associated with market volatility and Utility.

What the MSM often fail to recognise, is that the utility of Bitcoin will centre round its use as an investment asset, long before it widely used as a currency.

The primary reasons for this? As a way to hedge fiat currency debasement and counterparty risk in the legacy financial system.

As the network affect from this adoption takes hold, we will potentially see an ‘S-Curve’ pattern in Bitcoin utility; as adoption from both users, merchants and services expand. Increased utility and network size draw in more and more users in behavioural patterns that are seen from adoption in social media giants, like Facebook and twitter.

Institutional Investors, Private Equity, Hedge Funds :

Whilst 2014 was touted as the year of Wall Street participation in Bitcoin, as we enter Q4, this has not come to pass.

One of the main reasons for this is that Wall Street is interested in trading, not investment. They do not care about investing in evolutionary technology and the benefits it can bring; especially when the technology is detrimental to their own margins and their far reaching control over the financial system.

This point was highlighted in an interesting article by Jack C. Liu ‘Why Wall Street has yet to enter Bitcoin’ (5);

Jack C. Liu writes:

 “The motto for Wall Street has always been to find an edge – an arbitrage model, a high frequency algo, a long/short pair trade, credit vs. equity, offsetting risk to retail investors, fundamental analysis, event-driven plays etc – and then to lever up and trade on that edge. Rinse and repeat”.

In order to maximise the profits from the processes listed above they ultimately desire complete control over the markets in which they operate; another reason that might help explain why Bitcoin adoption by this group has yet to be realised.

However, this is not to say that they will not participate without control in the future. Something that myself and Javier have discussed and will feature in a future article.


 Whilst the price of Bitcoin remains supressed due to the weakness in chart technicals, market tone, asset allocation and sell side pressure from merchant adoption. It is important to focus on the growing strength in the fundamentals that have driven Bitcoin to date. It is these fundamentals that will likely address the requirements needed to bring in mass adoption and trust from user groups currently outside of the Bitcoin economy.

The diagram itself also puts Bitcoins first mover advantage into perspective. Whilst many (especially in in the MSM) are now claiming Bitcoin was a trial crypto currency or the ‘Napster’ if you like; and only its underlying technology has value. It will be a big task for another Coin/protocol to compete and capture the same human and monetary investment that has moved the Bitcoin economy to this stage.

Whilst there are many wild card scenarios that could cause extreme positive or negative shifts in the pattern and or speed of adoption, than those listed shown in the diagram.

It is important to remember that the main fundamental behind Bitcoin, as an alternative to the controlled Banking and Government issued fiat, has never been more important.

End notes:


2) depositors-we-may-charge-you





Why an IBM/Central Bank Blockchain system wont stop the surge in Bitcoin adoption

[The following article is by Renegade Investor Chief Editor – Edward Blake]

Ever since Bitcoins dramatic conception and explosion in popularity following the 2008 financial crisis; it would be a safe bet to assume that financial incumbents worldwide have had all there top think tanks planning on how they can marginalise, undermine, circumnavigate and prevent one of the biggest black swans in global finance for centuries from coming to fruition.

Bitcoin having previously been ignored & laughed at looks to be reassuringly into the ‘fight you’ stage, as an anonymous source allegedly linked to IBM has revealed this week:

Reuters Reports:

 “The company has been in informal discussions about a blockchain-tied cash system with a number of central banks, including the U.S. Federal Reserve, the source said. If central banks approve the concept, IBM will build the secure and scalable infrastructure for the project”

“Unlike bitcoin, where the network is decentralized and there is no overseer, the proposed digital currency system would be controlled by central banks, the source said”

Whilst we don’t yet know the full details or validity of these statements; if they are true, a system of this nature (whilst potentially offering some advantages for traditional currencies) goes completely against the fundamental ideology of the Bitcoin protocol as an open source, decentralised, trust free network.

In my opinion, it would not be unfair to interpret this as an attempt by central banks to bootleg the underlying technology of Bitcoin, whilst trying to remain completely in control of the global financial system and monetary policy; which has caused unprecedented mal investment bubbles in recent times.

Whilst on the surface this is likely to be perceived as increased competition for Bitcoin ( and rightly so). There are a lot of reasons why a system of this nature may not be able to stop the surge in Bitcoin adoption. Here’s why:

1) Trust – Any closed proprietary system removes one of the cornerstone attributes of the open source Bitcoin network & currency, which is the universal trust of the network. The fact that Bitcoin is not controlled by any sovereign state or banking entities is one if not ‘its’ killer attribute that provides the network with tremendous potential value and utility.

2) Surveillance/politicised system – Point 1 is exacerbated by the loss of confidence in the US and the US tech industry since the Snowden NSA revelations and the use of back door surveillance in US technology. In addition, nations outside the US are not going to jump at using a new SWIFT’esq system at a time when they are becoming increasingly aware of SWIFT’s ability to be used as a political tool/leverage with regards to geopolitical events such as international sanctions. A  great example of this is China’s recent completion of a SWIFT alternative.

3) Innovation – Open source networks such as Bitcoin and the internet create a free market environment that encourages large scale innovation by removing prerequisites for participation in the development of services and Businesses that sit on the network. The result of this is large scale & rapid innovation. A closed proprietary walled garden system such as the one rumoured by IBM could potentially lack the ability to compete with the rapid innovative progression of the Bitcoin economy and infrastructure.

4) Confidence – in Central banking and governments worldwide is on the verge of being decimated. Years of promises that QE would benefit the wider real economy are failing, with evidence of massively deteriorating global macro-economic data in 2015, led by the United States.

During the next recession ( which looks to be imminent) there will be no easy policy tools left for the central banks, such as lowering interest rates & there are only so many times you can announce another QE program before losing all credibility. The lessons learned from this monetary experiment could be so egregious and detrimental that people worldwide will be massively sceptical of any monetary system tied to these central institutions in the future.

5) Currency wars – We are currently experiencing an era of large scale & accelerating currency wars worldwide. The race for all fiat indebted currencies to devalue their currencies to relieve debt burden’s and support their global exports has already led to over 20 instances of monetary easing by central banks in 2015 alone.

This trend looks set to continue, as the amount of debt needed to produce additional amounts of GDP growth has led to extreme volatility and risk in Forex markets. In 2015 this has rattled institutional investors and led to billion dollar losses for funds worldwide. In a period of financial turmoil and unpredictable events, investors and individuals will move to currencies without counterparty risk such as bitcoin and precious metals

6) Currency Attributes – Whilst the details are not 100% clear yet on the system reportedly being created by IBM. If the idea of the system is to represent traditional fiat currencies in a tokenised format with an underlying blockchain infrastructure; what will be the attributes of the currencies that operate on this network? Blockchain protocols at their core are monetary systems with unique characteristics that define the desirability of the currency on that specific network/system. Bitcoin is highly desirable because of its finite supply (inflation hedge) low counterparty risk, and open source protocol that provides a level playing field on a global scale.

If the traditional government currencies that are to operate on the new IBM system still have the attributes of current fiat currencies such as: infinite supply (through fractional reserve & QE policies). Are still unpredictable and manipulable due to policy oversight by a few individuals and are on a  trust based closed proprietary system. Then what IBM system will achieve will only be a fraction of what Bitcoin can offer and currently provides. Due to the nature of good money driving out bad, you would still expect in this scenario for capital flows away from this system and into bitcoin.

7) Time – Bitcoin has already been around for over 6 years and in technology terms that means its potentially nearing the tipping point of ‘S-curve’ adoption. The point where adoption becomes an exponential curve. This happens on average approximately 4-7 years after the technology is created.

S-Curve adoption

(click to see larger image)

The longer it takes for IBM’s system to come to fruition, the more chance Bitcoin will have already ready reached its critical tipping point for mass adoption.

8) Revolution – With the relentless militarisation of police forces, the use of armed forces domestically and increasing amounts of legislation to clamp down on protesters and belligerents. Protesting what could be argued the most unbalanced and unfair global monetary system in history, is becoming physically dangerous. It is here where Bitcoin could become the digital revolution, a way to peacefully push back, by deleveraging the out of control current financial system, without having to take volleys of rubber bullets and lung fulls of tear gas, if not worse.

As people awaken to the realities of the current monetary system, the anger phase of this awakening is more likely to push people to alternative currencies outside of the current system and away from those controlled by central financial institutions.


Since the first day I invested in Bitcoin there has always been two main fundamental reasons that have driven me to Bitcoin as a currency and store of value.

The 1st is debasement of traditional fiat currencies and 2nd to eliminate counterparty risk to the financial assets that I hold.

If the IBM/central bank blockchain system comes to fruition in the way described by the IBM source, it is difficult so see how this system would compete with these two main fundamental reasons for investing in and holding Bitcoin.

Along with all the other reasons above, there is a lot of hope that Bitcoin will continue to lead the way against competition; to a fairer global financial system in the future.


Bitcoin 2.0 – ‘Blockchain’ platform to replace incumbent financial services providers

[The following article is by Renegade Investor Chief Editor – Edward Blake]

It has recently been reported that major UK brokerage Hargreaves Lansdown currently managing around £40 billion in client assets has launched a price war in the brokerage industry, signalling possible future savings for retail investors in particular.

It could be suggested that such a move may be premeditated to offset any negative PR in response to the upcoming Retail Distribution Review (RDR) in April headed up by the FCA. One of the reviews aim’s is to bring greater transparency to the brokerage industry’s widely used pricing model where trail commission is extensively used between fund manager and Brokerage as compensation for facilitating and promoting investments, in particular for popular Open & Close ended funds.

Whether or not the use of trail commission model is actually a negative for retail investors is debateable, however, whilst regulators and brokerages tinker around with pricing models, potentially a much greater problem for the brokerage industry and financial service industry is currently looming on the horizon. It’s a threat from the world of Bitcoin and crypto currencies and it could truly lead to increased competition and much lower prices for investors in the financial markets.

‘Bitcoin 2.0’ has recently been coined to describe the growing trend of alternate uses for the Bitcoin network protocol. The Bitcoin ‘Blockchain’ (the decentralised public accounting ledger) is essentially a massive distributed asset registration system and this technology may soon be competing with the current function of (CSD’s) central security depositories and international central security depositories (ICSD’s).

These systems currently facilitate the electronic settlement of securities all over the world and include banks and brokerages that act as centralised registrars for assets within these systems; where things such as the trade, currency for the trade, registration of asset ownership and tax payments are settled between registrars for a wide range of securities.

But just as Bitcoin has ushered in a new era of decentralised global digital currencies that facilitate frictionless, low cost, efficient transfer of value outside of the control of governments and financial institutions, there are ongoing projects under way to do the same thing with other financial assets.

Two prime examples of these are ‘Mastercoin’ and ‘Coloredcoins’ which are basically additional protocols that sit on top of the main Bitcoin network and provide additional functionality to the underlying network. The main purpose is to take small fractions of the Bitcoin currency to create tokens that can then be assigned different values and functions. These in turn can then be traded between individuals and companies. This could potentially lead to the total digitalisation and decentralisation of many services currently provided by financial institutions including:

  • Issuance and secondary market trading of Stock, ETF’s, VCT’s, Investment trusts, OEIC’s and CEIC’s, Corporate and sovereign bond.
  • Trading of Commodities
  • CFD, spread betting, derivative market (financial contract management)
  • Property and contract rights ownership

In any situation where proof of ownership needs to be registered or facilitated, these systems have the potential to remove the middleman and would therefore at the least provide increased competition and at the most threaten the very existence of brokerages and financial institutions that provide these services as a large part of their business model.

The benefits of this cannot be understated:

At the moment there are multiple CSD’s and ICSD’s that investment funds and companies have to be registered with on individual basis to make their financial product eligible for purchase and trading in that jurisdiction or region. With the decentralised method shown above the medium of trading and purchase will simply be through the internet. This has the potential to be one of the greatest examples of lean engineering ever witnessed.

For entities such as Investment funds or companies issuing stock or financial products, they instantly have access to a much larger global market, reduced administration costs and the removal of costs associated with the third party financial institution and it would also have the potential to decrease the time it takes to roll out financial products. All of this could potentially lead to reduced management fees and or lower spreads which again is another benefit to potential investors.

Other advantages to the investor is being able to be in essence, their own brokerage, which means they will not be paying the considerable fees that facilitate the overheads of the brokerage or financial institution. These include, buy & sell trading fees, exit fees, transfer fees, account closing fees, annual management charges for specific accounts. This frees up more capital that can be invested to further support growth and innovation. In addition the investor could easily have access to a much larger pool of investment markets and financial products that are often restricted through certain brokerages and financial institutions.

One other area that could be significantly improved is the integrity of the markets. It is no secret that since 2008 especially there have been multiple instances and revelations of market manipulation by the big banks in particular, including Libor manipulation that affected hundreds of trillions of dollars in assets benchmarked to this rate. Bitcoin 2.0 can provide triple entry accounting, completely eliminating the possibility of manipulation and alleged naked short selling that has been so prevalent in recent times.

There are significant challenges to overcome before such a system is fully developed and easily accessible for main stream use, one of which (besides technological development) is the navigation of the international regulatory landscape. However, it will hopefully bring much needed competition to a financial services sector that has become growingly complacent with archaic infrastructure, considerable fees and a severe deterioration in integrity.

We have already seen positive signs of remittance service providers dropping prices for sending money abroad, which could be attributed to the rapid growth of Bitcoin. Could Bitcoin 2.0 about to have the same impact upon other financial services in the near future?