Bernstein: 'Bitcoin & Decentralized Tech Accelerate as the Alternative Global Settlement Layer'

Bernstein analyst Gautam Chhugani highlights how, in a deglobalized, multipolar world, Bitcoin and decentralized technologies are rapidly emerging as the alternative global settlement layer.

The analyst commented: "This report is part of a global series in which our analysts highlight a company or group of companies under our coverage in which some aspect of de-globalization - and the corporate strategic response - has become an important investment consideration.

We have covered Crypto, the technology behind decentralised ledgers for over 4 years. Investors have often struggled to see the point behind it all. Why would you need a decentralised settlement system, when the centralised system today works well? All of this assumed the current status-quo ‘rules based order’ forever. As the U.S and world resets the rules of trade, the world for the first time may consider decentralised technologies that can form the alternative ‘trust layer’, promising resilience and neutrality as ‘global trust’ fails. We believe, this would accelerate three foundational decentralised technologies- 1. Bitcoin, the global trustless ‘store of value’ 2. Decentralised blockchains - the alternative global settlement layer and 3. Tokenization, stablecoins and CBDCs - the value layer for global settlement as new economic blocs take shape.

1. Bitcoin: We expect nation states to consider Bitcoin as an alternative ‘store of value’ reserve, other than Gold and US Treasury. Gold is ‘great’ and has worked well for ages, but is a physical asset and hard to move across borders, particularly, as nation states prefer to custody their own gold out of geopolitical caution. US Treasury lies at the center of the current conflict, only natural to hold US Treasury reserves if you run trade deficits with the U.S (~23% of US Treasury is held by foreign governments). Bitcoin is the only ‘store of value’ asset which is not controlled by any single nation state, without any counter-party risk, digital (self-custody and cross-border portability is not a challenge) and liquid and globally traded 24*7 (trades $40-50Bn a day). We expect the U.S government to move faster and gain a strategic advantage by building the first ‘national Bitcoin reserve’.

2. Blockchains - the new global decentralized settlement layer: Decentralised blockchains offer an alternative global cross-border settlement layer between individuals, institutions and nation-states. Blockchains solve global trust and permission-less settlement, without any centralized authority and censorship. Speculative crypto tokens were simply the first ‘toy innovations’ that proved the business case for blockchains. As the world tokenizes real-world assets (equity, debt, money markets and currencies), decentralised blockchains become the alternative global financial market. Ethereum, Solana are the leading blockchains settling trillions in value annually.

3. Finally, tokenised currencies and assets (Debt, equity, money markets and currencies) become the new value layer on decentralised blockchains: Today, tokenization is led by USD based stablecoins. However, as new economic blocs take shape, we could see nations aligning with select stablecoins or central bank digital currencies. For e.g US economic bloc led by USD based stablecoins and China economic bloc with sponsored CBDC settlement layer. We see growing applications built around stablecoins global B2B payments, cross-border remittances, and inter-bank settlements. We also see financial institutions accelerate adoption of tokenization of real-world assets (equity, debt, money markets) to build an alternative global financial market.

We like Crypto equities as proxies to Bitcoin and crypto exposure. We are Outperform HOOD, COIN, MSTR, RIOT, CLSK, IREN, CORZ."

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