Needham: Banning Does Not Prevent Bitcoin Adoption

Needham & Company LLC, released a note for investors Thursday on the ‘Economic and Financial Turmoil Driving Bitcoin Interest & Adoption’. The note discusses various indicators the firm believes would propel increased bitcoin adoption going forward, such as capital controls, demonetization, hyperinflation as well as bitcoin bans. Some factors may seem negative at first but Needham believes they ultimately drive bitcoin interest and adoption.

Also read: Needham: Probability of Approval for a Bitcoin ETF ‘Very Low’

The company is a nationally recognized investment banking and asset management firm focused solely on growth companies. Since its inception, it has acted as lead or co-manager in over 785 public offerings.

Banning Bitcoin Does Not Have the Desired Effect

Needham analyst and author Spencer Bogart explained that some countries will inevitably ban or place onerous regulation on Bitcoin.

“While these actions certainly don’t benefit Bitcoin adoption, they typically don’t prevent it either,” he noted, adding that:

While some countries have either banned bitcoin or enacted prohibitive regulations, we note that the results appear to be the opposite of the intended effect: interest in bitcoin has skyrocketed in some countries that have banned bitcoin.

Citing Bangladesh as an example, Bogart referenced the Central Bank’s bitcoin ban in September 2014 which imposed 12 years of jail time for offenders. Using bitcoin’s share of internet search queries as a proxy for interest in bitcoin, he said in 2016, the country subsequently became number seven globally with the highest bitcoin interest.

“Interestingly, the top rising related topics and queries all appear geared toward genuine usage (searches for popular wallets, conversion rates, etc) as opposed to activity related to scams/Ponzi schemes or regulatory news,” he added.

Likewise, Bolivia, which banned bitcoin in mid-2014, also saw a spike in bitcoin interest and ranks number eight overall for relevant search terms.

The phenomenon Bogart describes for search interest in countries where bitcoin has been outlawed is well explained by the Streisand effect, which states that censorship often has unintended consequences, and those who are censored from information will be likely to seek it out even more vigorously than before.

Some Other Factors Driving Bitcoin Adoption

Some other factors driving bitcoin adoption discussed in the note are capital controls, demonetization, and hyperinflation across several countries which Bogart claimed are propelling bitcoin’s rising interest and adoption worldwide.

For example, India banned large bills last November and bitcoin’s interest, based on internet search volume and well as trading volume, surged and bitcoin usage has tripled since the ban, Bogart explained.

In Nigeria, the rate of inflation has nearly doubled over the past year to 19% which is accompanied by “a rapid increase in search interest for Bitcoin within the country,” he said, adding that in Venezuela the hyperinflation (180%+) problem has been plaguing the economy and it is “driving a surge in Bitcoin interest and trading volume.” Overall, he concluded that:

Interference in the storage and flow of capital is driving global interest in bitcoin.

While some countries have opted to ban bitcoin, there are others that have embraced it, which Bogart acknowledged in his note. For example, Switzerland has added the ability to buy bitcoin at any of the National Swiss Railway ticket kiosks, of which there are over a thousand spread around the country. Paying utilities with bitcoin is also possible in the Swiss town Zug. In addition, the country is also reportedly developing a potential licensing of “crypto-banks” which would “create a new category of financial institutions that are able to handle cryptocurrencies such as Bitcoin,” Bogart described.

The note also revealed the United States trails 20 other countries in bitcoin interest as revealed by bitcoin’s share of internet search queries. “While much of the initial venture activity and interest in bitcoin came from within the United States, international interest has surged,” the note reads. Caracas (Venezuela), Kuala Lumpur (Malaysia), Sandton (South Africa), and Lagos (Nigeria) all exceed the interest from San Francisco and New York, the note revealed.

Do you think banning bitcoin will prevent adoption? Let us know in the comments section below.

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