A short story: Banking on Crypto

Prosper Mwedzi
The Capital
Published in
5 min readAug 22, 2021

This is my first writing since El Salvador entered the hyperbitcoinisation phase by adopting the bitcoin standard as legal tender. If I were to say things move really fast in crypto, it would still be an understatement. The adoption of bitcoin at a national level is remarkable given that bitcoin market only constitutes a tiny drop in global assets. A decade after its creation, academics, enthusiasts, economists and bankers are still at odds as to how to class bitcoin with some arguing that it is a commodity whilst others think it has characteristics of choses in action. The arrival of El Salvador, throws a cat amongst the pigeons by making it a national currency. The world is still none the wiser than it was yesterday.

The year 2020 remains a truly memorable year on the crypto timeline for several reasons, but 2021 really marks a different phase of adoption — a departure from adoption on the retail and institutional level to whole countries. This comes as a huge surprise as it represents the antithesis of what crypto was meant to be. The philosophy on which bitcoin was built was that of anti-establishment and disintermediation. The genesis block, which was the first to be generated for bitcoin, had an important notation from the Times Newspaper published in the UK, which read “Chancellor on Brink of Second Bailout for Banks.” This was the first message which Satoshi distributed on the ledger to the world-a clear show of contempt or disdain towards the establishment. We would soon find out that the relationship between governments and bitcoin would never be a romantic one. It would evolve into one characterized by fear-mongering, restrictions, and bans. Bitcoin was born out of a desire to give the people a chance to opt-out in case there would be a run on the banks similar to the last recession.

Institutional adoption

The future of bitcoin as a mainstream asset has always been shrouded by uncertainty, however, 2020 marks the watershed moment bringing the institutionalisation of bitcoin and other crypto-assets to the fore. On 22 July 2020, the regulator of the banking sector in the US, the Comptroller of the Currency, issued authoritative guidance to banks allowing them to custody crypto assets in the same way they do money. This development equally shocked the crypto faithful in the same way it did to banking institutions globally. Oh boy!!-little had they known of what was about to come. A few days later, on July 31st, the Office of the Comptroller of the Currency would follow through with a seismic announcement that it would begin accepting applications for a special purpose national bank charter from crypto fintechs. The cryptoverse was sent into a frenzy as it was like Christmas, Easter, and New Year, all happening within hours of each other. It had become clear that the crypto standard was unstoppable. It was the beginning of a whole new era in the digital assets space. These developments were all necessary ingredients for the mainstreaming of crypto. If big institutions were to dabble in crypto, the prerequisites needed to be met, and these included institutional-grade custody services as companies wouldn’t want to handle technicals involving storage, disposal, etc. The assets also needed to be insurable from loss through cyber attacks. These regulations were the linchpin to growth in this space, as time would show.

Headline from Yahoo News

The occurrence on the 11th of August 2020 altered the script for bitcoin significantly. At first, a listed company in the US decided to allocate its treasury reserves into bitcoin as previously announced on July 28, 2020, and the rest became history. The investment by Microstrategy amounted to 21,454 bitcoins (worth over $250 million at the time). From the moment Microstrategy entered the space, major companies holding bitcoin have become a normal occurrence. This only held till Tesla decided to buy $1,5bn worth of bitcoin in February 2021. The adoption of bitcoin by Tesla was one of the major endorsements of bitcoin by a mainstream company, and the engagement on Twitter between HODLERS and Elon Mask became a regular occurrence.

Conception of a new asset class

Extract from Goldman Sachs Website

Cryptocurrencies and bitcoin as an asset class were inconceivable years ago, given the violent past between traditional finance and decentralised finance for which bitcoin is part of the ecosystem. A shift in the narrative was only cemented when the global head of digital assets for Goldman Sachs weighed in on bitcoin following an anti-bitcoin campaign by the CEO lasting years. He declared that

“Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase.”

Such is the journey traveled by bitcoin to become legal tender.

During a bitcoin conference in Miami, Jack Mallers broke the news through a recorded video that the President of El Salvador was going to put forward legislation to make bitcoin legal tender in his country. Within days, bitcoin had been adopted in El Salvador as legal tender with a majority vote making it one of the most sensational stories in economics, law, banking, finance, and in almost every discipline that can be named.

Bitcoin was never created for countries, but in a similar fashion, it never excluded anyone from adopting it. The story for bitcoin is one that is dynamic and constantly developing, and it will continue to puzzle everyone who stumbles upon it. It is an asset, a commodity, a currency, and anything which anyone wants it to be.

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Prosper Mwedzi
The Capital

Fintech and payments lawyer (U.K.), all things blockchain law, writer and and proponent of financial inclusion, human rights and rule of law.