From 2017 to 2021: Bitcoin’s Change in Narrative

2017 was the year when many people made their first contact with cryptocurrencies. 2021 is likely going to be another year when millions of people will onboard the ecosystem once again.

From 2017 to 2021 Bitcoin’s Change in Narrative

At the moment we are witnessing institutional adoption by macro investors such as Raoul Pal who is irresponsibly long on Bitcoin or Paul Tudor Jones who sees a massive upside for Bitcoin.

On top, we are witnessing large corporations such as MicroStrategy or Square investing parts of their corporate treasury into Bitcoin.

Despite all this excitement, retail is not yet paying attention. It is apparent that we are far below the level of interest in cryptocurrency from what we have observed in late 2017. At the same time, it becomes more and more obvious that it is only a matter of time until retail rediscovers the leading cryptocurrency.

Bitcoin – Interest over time – worldwide, Data Source: Google Trends, extracted in November 2020

Change in Narrative

The people that will enter Bitcoin in 2021 will be told a story that is substantially different from the story that newcomers got told in 2017. In the following, we look at the evolution of the Bitcoin narrative.

Bitcoin as Peer to Peer Digital Cash

Bitcoin was originally conceived in the white paper as a Peer-to-Peer Electronic Cash System. The idea of Bitcoin serving as electronic cash got stuck in the head of many early adopters of Bitcoin and drove the narrative for years to come.

People used Bitcoin to pay for daily necessities and proudly posted pictures of places where Bitcoin was accepted as a means of payment on social media. Despite the popularity of Bitcoin as a means of payment the use case that it tried to serve did not resonate with everyone.

As the popularity of the network rose the transaction fees increased which made it harder and harder to sustain the digital cash narrative. Who would be willing to pay 10 USD in transaction fees at the airport for a coke that was worth 2 USD?

Many proponents of the peer to peer digital cash system saw Bitcoin’s function as a means of payment in danger. Those people ended up supporting the increase of the block size in the Bitcoin network which would serve as a way to lower transaction fees. However, these ideas did not obtain consensus among the Bitcoin community.

The differences that were carried out eventually culminated in the Bitcoin Cash fork which took place on August 1, 2017. With Bitcoin Cash, a new currency was born that would serve the purpose of delivering peer-to-peer electronic cash.

The fact that the proponents of digital cash had left Bitcoin Core allowed the remaining community to refine its narrative and the purpose of the cryptocurrency without taking into account the groups that pushed for the digital cash use case. This had the effect that the Bitcoin narrative started to evolve.

Bitcoin as a Store of Value

As time passed it became clear that Bitcoin would not go away. The technology gained credibility for surviving the test of time. It also became clear that the electronic cash narrative that the community initially promoted did not serve its purpose anymore.

During the 2018 bear market, the Bitcoin narrative underwent a change. The idea that Bitcoin would be a store of value gained popularity.

Based on its historic price data the 1-year-moving average almost constantly climbed upwards against the US Dollar. People argued that Bitcoin was a good store of value historically and would therefore compete with other store of value assets such as gold.

More and more people started to compare Bitcoin with gold and to apply the same valuation methods. Suddenly Bitcoin was contrasted with gold in store of value dimensions such as divisibility, scarcity, and portability.

In 2020 the digital store of value narrative eventually ended up becoming the mainstream narrative for Bitcoin. If you would ask one of the proponents of Bitcoin in the year 2020 why the cryptocurrency is useful the arguments would circulate around the typical store of value categories.

This narrative had one tremendous advantage: Bitcoin had everything that was needed to perform the store of value function. The lightning network that was promised for years to bring scalability was suddenly no longer needed since the store of value assets did not require massive scalability. People typically do not transact on a daily basis with an asset that is used as a store of value. They buy it once and then lock it away for several years. This was great news. It meant Bitcoin had found its product-market fit!

A New Class of Investors Entering the Space

The new narrative allowed for a new class of investors. Global macroeconomic investors who would not have felt attracted by the digital cash narrative suddenly discovered an asset class that made a lot of sense in the macroeconomic context with constant central bank easing and fiat currency debasement.

Hedge fund investors such as Druckenmiller made public statements that Bitcoin had a lot of attraction as a store of value. The story for institutional adoption was constructed successfully.

Before You Go…

So far we have only observed the first decade of Bitcoin’s existence. The anonymous project has achieved tremendous success. The narrative that was told by the community surrounding it proved adaptable.

It might not have been the last time we have observed a change in the narrative. Technological breakthroughs such as the lighting network or adoption milestones such as the usage of Bitcoin as a reserve asset may change the story of Bitcoin’s purpose once again.

As the one-year moving average of Bitcoin is approaching new all-time highs it becomes clear that Bitcoin has established itself as a new asset that is here to stay. The store of value narrative is validated.