How Wall Street’s Relationship With Bitcoin Will Transform in 2025: 5 Predictions

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As a seasoned investor who has witnessed the rise and fall of various market trends, I can confidently say that the shift towards bitcoin is one of the most intriguing developments I’ve ever seen. I remember the snickers from Wall Street analysts when Michael Saylor announced MicroStrategy’s Bitcoin move in 2020. Fast forward to today, and those same analysts are scrambling to catch up!

In August 2020, when Michael Saylor revealed that MicroStrategy was exchanging $250 million from its Treasury reserves into Bitcoin, Wall Street analysts considered it an imprudent risk. At that moment, Saylor deemed Bitcoin as better than cash, a stance that stirred doubt among traditional banking communities.

Today, many of the banks who once dismissed Bitcoin’s potential for corporate use are now eagerly joining the Bitcoin-backed lending market. This is because they see its impressive qualities as high-quality collateral for institutions and recognize the growing demand for it as a successful product in the marketplace.

Unlike traditional assets like property that need human appraisal, are subjective in valuation, and have different legal requirements based on location, Bitcoin provides immediate validation of its backing through blockchain data, offers continuous 24/7 settlement and liquidation, maintains consistent quality regardless of where it’s used or who is involved, and can automatically enforce lending conditions.

When a lender discovers they can swiftly authenticate and, if necessary, sell bitcoin security immediately at 3 a.m. on a Sunday – contrasting with real estate that requires manual assessments, personal evaluations, and the possibility of evictions – such an advantage will make reversing this trend unlikely.

1. Traditional banking bends the knee to bitcoin.

MicroStrategy (MSTR) revolutionized the way public companies perceive bitcoin as a treasury resource. Instead of just owning bitcoin, they innovated a treasury system that utilizes public markets to boost their crypto holdings. This is done by issuing convertible notes and offering equity at market rates to fund bitcoin acquisitions. This strategy has enabled MicroStrategy to surpass the performance of spot bitcoin ETFs by applying the same financial engineering techniques that made traditional banks powerful, but with bitcoin serving as the underlying asset instead of conventional financial instruments or real estate.

Consequently, I anticipate that MicroStrategy (MSTR) might declare a 10-for-1 stock split in the year 2025, aiming to boost its market presence. This move would make it easier for numerous investors to acquire shares and options contracts, thereby reflecting how significantly bitcoin has influenced conventional corporate finance strategies.

Additionally, it’s my conviction that financial offerings centering around Bitcoin are poised for a significant surge in demand, as both seasoned investors and newcomers seek to maximize their returns from their Bitcoin holdings. It’s anticipated that we will witness a swift expansion in global Bitcoin-backed loans and income-producing products designed specifically for Bitcoin holders.

To elaborate further, the appeal of bitcoin-backed loans lies in their symbolism of financial equality. A merchant in Medellín encounters the same collateral conditions and interest rates as a business owner in Madrid. Since every individual’s bitcoin possesses identical characteristics, verification procedures, and liquidation methods, it eliminates the unnecessary risk premiums that have traditionally been levied on borrowers in developing economies. This uniformity fosters financial inclusivity on a global scale.

For years, traditional banking institutions have touted “global reach,” but their lending practices have varied significantly from one region to another. Today, the emergence of bitcoin-backed lending platforms reveals this inherited inefficiency as nothing more than an artifact from a bygone financial era.

2. Borders fall as capital flows freely.

In the forthcoming years, countries are anticipated to intensify their rivalry over attracting Bitcoin-related ventures and investments. As a result, we predict that in 2025, there will be new tax benefits tailored for Bitcoin investors and businesses. Additionally, rapid visa programs for crypto entrepreneurs and regulatory structures aimed at luring Bitcoin companies are expected to materialize during this period.

As a crypto investor, I’ve noticed an interesting shift in global competition – instead of vying for manufacturing hubs or regional offices, nations are now racing to establish dominant positions in Bitcoin mining operations, trading platforms, and custodial infrastructure.

As an analyst, I find myself examining El Salvador’s innovative approach to Bitcoin as part of its national treasury. This early exploration into Bitcoin reserves for nations signifies a bold step forward in the realm of sovereign finance. While this experimentation is still in progress, it has certainly sparked a conversation, and the recent suggestion of a U.S. Strategic Bitcoin Reserve has further fueled this discussion. Traditional financial hubs are now compelled to reconsider Bitcoin’s significance within the global financial landscape.

Other countries may examine and strive to imitate these structures, setting up their own plans to entice bitcoin-based investment funds.

3. Banks race against obsolescence.

In the realm of financial markets, essential needs fuel creativity. Nowadays, it’s common for public firms to access bond markets and convertible debt instruments to fund Bitcoin-related activities. This shift in strategy has essentially elevated Bitcoin from a mere speculative asset to a vital component in corporate cash management strategies.

Businesses such as Marathon Digital Holdings and Semler Scientific have found success by emulating MicroStrategy’s approach, and this strategy has been recognized positively by the market. This serves as a significant indication to financial directors and executives alike that Bitcoin is now attracting their interest.

Over the past two years, Bitcoin lending markets have significantly evolved. Now, as unsuitable entities are removed, reputable institutional lenders insist on secure collateral separation, transparent storage systems, and prudent loan-to-value ratios. These risk management practices standardization appeals to the exact type of institutional capital that once remained inactive.

A clearer regulatory environment in the U.S. could encourage more banks to participate in Bitcoin-related financial services, ultimately benefiting consumers by increasing competition and lowering rates for Bitcoin-backed loans, which would make them increasingly attractive.

4. Bitcoin and crypto M&A intensifies.

With regulatory certainty increasing due to the SAB 121 resolution on cryptocurrency custody and other guidelines, traditional banks now stand at a pivotal juncture: they must decide whether to construct or purchase a pathway into the burgeoning market of Bitcoin and lending. Given this scenario, it is reasonable to anticipate that at least one of the leading 20 U.S. banks will make an acquisition of a crypto-related business within the next year.

Financial institutions may feel the need to act swiftly, as the timeframes for building cryptocurrency frameworks exceed their competitive deadlines, whereas traditional companies are currently handling billions every month using proven and resilient systems.

These sophisticated systems, built over many years with specialized expertise, are not easily duplicated by banks in a short timeframe. The price paid for acquisition tends to decrease as the cost of missing out on immediate market entry increases. (Paraphrased)

In simple terms, when a bank reaches a certain level of maturity in its operations, has clear regulations regarding cryptocurrencies, and finds it essential for strategic reasons, it naturally tends to adopt cryptocurrency functions. This behavior is reminiscent of the past when banks chose to acquire existing electronic trading platforms instead of developing their own internal systems for financial technology integration.

5. Public markets validate bitcoin infrastructure.

As a researcher delving into the dynamic world of cryptocurrencies, I am confidently anticipating a groundbreaking year for this sector in the public markets. It’s my prediction that we will witness at least one prominent Crypto Initial Public Offering (IPO) with a staggering valuation surpassing $10 billion, right here in the U.S.

The following phase of finance will be penned not by those who are reluctant to adapt to this change, but rather by those who understand that their continued existence hinges upon accepting and adapting to it.

The opinions put forth in this article belong to the author alone and may not align with those held by CoinDesk, Inc., its proprietors, or their associates.

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2024-12-18 23:30