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    Explained: What is hyperbitcoinization and what can lead to this phenomenon

    Explained: What is hyperbitcoinization and what can lead to this phenomenon

    Explained: What is hyperbitcoinization and what can lead to this phenomenon
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    By CNBCTV18.com  IST (Published)

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    As mainstream adoption of these digital assets grows, we could find ourselves at a fork in the road, a point where Bitcoin could become the default value system of the world. This inflexion point is often referred to as hyperbitcoinization.

    Cryptocurrencies have come a long way. They have quickly evolved from a speculative asset class to a burgeoning industry that’s expanding every day. At the helm of this growth explosion is Bitcoin, the world’s oldest cryptocurrency.
    As mainstream adoption of these digital assets grows, we could find ourselves at a fork in the road, a point where Bitcoin could become the default value system of the world. This inflexion point is often referred to as hyperbitcoinization.
    There are several events and factors that can lead to hyperbitcoinization, some good and some bad. There are also several predictions as to when such a monetary system could exist. This article will cover all these points and more.
    What exactly is hyperbitcoinization?
    Definitions of this phenomenon are wide-ranging. When the term was coined in 2014, it referred to a transition from inferior currencies to superior ones like Bitcoin. It could be used to describe a tipping point where people deem fiat currencies as unsustainable, abandon them and convert to Bitcoin.
    Some also view it as a process where Bitcoin will be adopted as the world’s primary monetary reserve. As a result, products and services will be denominated in Bitcoin. Put simply, hyperbitcoinization refers to a world where digital assets are regularly used as a transactional currency, and held by individuals and businesses, just like fiat currency.
    Factors that could lead to hyperbitcoinization
    Hyperbitcoinization could be a product of several good and bad factors. To begin with, mainstream adoption could be one of the biggest catalysts for hyperbitcoinization. As more individuals, companies and entire countries begin to invest in cryptocurrencies, the era of hyperbitcoinization doesn’t seem very distant.
    Rough estimates indicate that there are nearly 100 million Bitcoin users, 250,000 BTC held by countries and almost 400,000 BTC held by public and private companies. If these numbers continue on their current trajectory, hyperbitcoinization is almost a surety.
    The rising number of Bitcoin derivatives is another factor that could lead to hyperbitcoinization or speed up the process. Today, Bitcoin derivatives such as ETFs, futures, options, and perpetual contracts are picking up steam. They provide traditional stock market traders and risk-averse investors exposure to crypto markets.
    Further, just a few years ago, Bitcoin as a transactional currency seemed like a distant reality to many. However, a lot has changed since then. Today, several leading businesses accept crypto as a mode of payment, including airlines, restaurants, car manufacturing companies, etc. With time, the list of Bitcoin-accepting enterprises is set to grow exponentially, bringing us closer to hyperbitcoinization.
    One of the negative factors that could lead to hyperbitcoinization is the introduction of central bank digital currencies (CBDCs). Once introduced, these digital fiat currencies will add surveillance and control to the workings of the current monetary system. Those looking for financial freedom (a vast majority of users) would shift to decentralized currencies like Bitcoin, thereby speeding up hyperbitcoinization.
    Another negative factor (and perhaps the biggest one of them all) is inflation. The rapid devaluation of fiat currencies is driving individuals en masse towards Bitcoin. Thanks to its rapid price appreciation over the last few years, the legacy coin is increasingly being seen as a hedge against inflation. People worldwide have purchased BTC to preserve (and possibly multiply) the value of their wealth over time. Therefore, if inflation increases, it will fast-forward the path to hyperbitcoinization.
    When will hyperbitcoinization occur?
    In 2021, Finder surveyed 42 cryptocurrency experts. The findings revealed that 54 percent of the panel believed that hyperbitcoinization could happen by 2050. Some experts (29 percent) thought it could happen as soon as 2035.
    “I would say at least a decade for hyperbitcoinization would be the most likely and actually conservative estimate,” said Kraken growth lead Dan Held at last year’s Bitcoin conference in Miami. “If we do have an event where there’s rapid devaluation of fiat currency, bitcoin starts to surge or gets close to $1 million per bitcoin — a supercycle-esque moment — then we could see it much sooner, maybe five-six years or so, but that would be a very unlikely outcome.”
    However, this would call for billions of new users to be onboarded in the next few years. It would also require massive support from governments and regulatory bodies, which is why 44 percent of Finder’s panellists did not expect hyperbitcoinization ever to occur.
    Conclusion
    All-in-all, it’s tough to predict when hyperbitcoinization will occur. A transition of such magnitude is sure to take a lot of time. Currently, there are also a plethora of security and regulatory concerns hindering the adoption of crypto among retail and institutional investors. This could curtail hyperbitcoinization. However, the landscape is starting to change, and a monetary system based on Bitcoin seems like a real and not-so-distant possibility.
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