My journey with the Blockchain Ecosystem and why do I like Stacks?

I wrote my first report on Bitcoin in 2013 as a Tech Analyst for European bank, Berenberg and, first spoke at a public event about it in 2014 hosted by Finextra in London (click here for the video). Bitcoin price crossed $1000 then, and Coindesk and other blogs attributed the jump to the positive report by Berenberg which I wrote. A lot has changed since then.

Ofcourse the most obvious, which catches the attention of most people and the general public is the price of Bitcoin, which crossed $70,000. In the financial world, there isn't any other asset class which has generated such returns. The table below shows quite remarkable data. Bitcoin has been THE best performing asset globally, for 11 out of the past 14 years.

An inclusive wealth creation cycle:

This means that for those who participated in this technology, through working, mining, investing, generated a lot of wealth. A unique thing about this cycle of wealth creation was that unlike other wealth creations cycles of the past (East India Companies in 1600s, US Steel and Railways boom, gold rush, and oil boom of the 1800s, Technology boom of the 90s etc), it was far more inclusive. It was not approved, controlled and dominated by the crown, elite, or the state. As a result, a wide range of people benefited from this wealth creation regardless of their geography, religion, ethnicity, or the size of the wallets. The beneficiaries included students and tech geeks in their basements as well as companies (for example MicroStrategy) as well as smart governments which were able to capitalize on it. I think in human history, there are not too many examples of such openness. The phrase might sound bane due to political association (I have none), but the bitcoin wealth creation was truly for the many, and not for the few. And maybe this was the reason for what seemed like initial institutional and political objection.

Another thing, which most people are also aware of is that this journey from $1000 to $70,000 has not been linear. It has been very volatile with sharp swings. Media, and some policy makers only kept their attentions on the volatility. Unfortunately, this generated sufficient fear to keep them out of the wealth creation cycle. But it did not stop or even slowdown the technology development, evolution and development.

So, coming back to the present. As I sit here in Riyadh on a Friday morning to jot down these thoughts for my friend who ask me about my views on this topic, I think its important to take of stock of where is the industry today in 2024.

Firstly, there has been institutional adoption of the technology. The shareholders, and managements of global financial institutions have joined the digital asset industry and accepted its value, merits and most importantly its perpetuity. Earlier this month, Larry Fink, the CEO of Blackrock called Bitcoin a legitimate financial asset which everyone should hold (click here). Institutional adoption is not a trivial thing. It requires time and investment to build the skills, infrastructure and systems for a range of things such as accounting, tax, custody, compliance, governance, risks besides the customer facing channels. This means that, while the media and many people where keeping their attentions on just the price swings of digital assets, the institutions of finance were busy and quietly investing and building their infrastructure for adoption.

Now they are out in full speed. Today there are more than 260 digital asset ETFs/ETPs listed by 35 asset managers listed on 20 exchanges across 16 countries. More than $30bn has been invested in these ETFs by traditional fund managers. These are important statistics to sink in. These are fully regulated financial products, which are approved by traditional regulators and listed on stock exchanges in major centers of the world, and in which traditional asset managers are investing. $30bn is 300x more than the foreign portfolio investment which Pakistan Stock Market gets. Hence it sounds either funny or tragic, depending on the mood, that despite that, some regulators in Pakistan feel digital assets are too risky to be allowed to be offered to their public.

Secondly, now there is a complete and fast growing institutional digital asset ecosystem. There are more than 5,000 institutional investors in this space and a range of companies which are providing services to the industry. There are digital asset native auditors, lawyers, tax advisors, financial advisors, private banks, custodians, security providers, asset managers, broker dealers, traders, liquidity providers, research analysts. This is extremely remarkable. A whole parallel financial structure has developed in just 10-15 years. Most global banks such as Goldman Sachs, JP Morgan, etc have digital asset desks and complete verticals catering to these clients, and as stated earlier, many leading global asset management firms either already have, or are building their digital asset management products.

Lastly, on the government/policy reaction side, we have reached a stage where the leading US Presidential candidate (a former US President) will give a keynote speech at Bitcoin Conference in Nashville tomorrow (click here). There are two aspects of this. Firstly, as President Trump said, that he wants the US to be a technology leader in Digital Assets. But secondly, it also shows that the wealth creation and membership of the digital asset community has been so significant that Presidential candidates have to go and speak at Bitcoin conferences! Wealth generation has created influence and power. The Bitcoin ecosystem has more than $1 trillion dollar in value.

So what does that mean for Stacks and why did I start with that in the headline. As many of my friends would know, Stacks is a protocol which allows smart contracts to be written on Bitcoin. The technical term is that it is a Layer 2 (L2) on Bitcoin. The Stacks token, STX, trades on most global exchanges such as Coinbase, Binance, OKX, and has a market cap of close to $4bn. Building on smart contracts on Bitcoin is a critical to enable the next phase of Bitcoin.

Why is that ? As I mentioned earlier, today the millions of holders of bitcoin (retail savers, corporates, institutional investors, banks, university endowments, governments) hold more than $ 1 trillion in value in it. Now they want to use that asset for their financial needs. Today, it is like holding Gold (Bitcoin is called digital gold). They can store value in it but they cant use it, except for selling it (like gold). However, the power and the promise of digital assets and blockchain is far more. You can build a whole financial industry and products on top of it. Remember, it is smart technology -not just dumb paper.

Stacks allows people to build smart contracts for lending, savings, borrowing, exchange, asset management, derivatives - it unlocks the whole DEFI for the asset. This already exists on smaller and parallel digital assets such as Ethereum and Solana. However, all those features and applications (NFT, games, tokenization) was not available on Bitcoin so far. This is because it was difficult and costly to build on bitcoin. Stacks changes that with its technology set.

Institutional adoption of the digital asset ecosystem means that that institutions which hold bitcoin will HAVE to do more with their bitcoin. Stacks is the platform for this. It has been built by technology guys and has an active decentralized developer community. This is why many leading and smart institutional investors such as Panterra Capital, Spartan, NOIA have written about it. For those more interested, I recommend this podcast of Muneeb Ali, the founder of Stacks (PhD in distributed systems from Princeton) with Grayscale (click here) and here are some links to good reports (copied from Stacks Foundation's website :

Grayscale on Stacks (click here)

Spartan Group on Bitcoin Layer 2 (click here)

? House of Chimera reports on rapid growth in daily transactions on Stacks.

? Venture Capitalist Tim Draper says he’s excited about Stacks and explains his Bitcoin thesis.

? a16z lists Babylon chain and the Stacks layer as Big Ideas for 2024 and expands on the breakdown in this piece.

? Web3 Venture Studio “Thesis” shares thesis on Bitcoin & Bitcoin layers.? Pantera Capital publishes Blockchain Letter for the year ahead with the resurgence of Bitcoin and DeFi Summer 2.0 partially thanks to Bitcoin L2s.

? Portal Ventures shares Bitcoin thesis including Stacks as leading L2.

? Digital Asset Investment Firm North Rock Digital releases thesis on Stacks.

? Foundation Capital lists Stacks as an effort to give Bitcoin additional scalability and functionality.

? Messari publishes the latest edition of the Crypto Theses for 2024, including thoughts on Stacks & Bitcoin L2s.

? Coinbase releases 2024 Crypto Market Outlook predicting elevated activity for Bitcoin on secondary via L2s like Stacks.

? Investment Firm VanEck publishes 15 Crypto Predictions for 2024, including Stacks.

? Gate.io says Stacks Nakamoto is about to be upgraded to inject new impetus into the Bitcoin ecosystem.

Stacks also has two listed ETF/ETPs, one by Grayscale and the other by 21shares. The 21shares Stacks ETF is listed in European markets. For my friends who invest in European markets, here are the details of the European listed ETP:

ASTX | 21Shares Stacks Staking ETP

While a lot has happened over the past ten years, the digital asset industry excites me because it still has the momentum, energy and creativity of a new technology. It is still a work in progress. As technology analysts we are always in search for that. We want to go into sectors, assets, technology, careers where there is growth and a large potential of impact and change. The curtains have just come off from the institutional of digital asset industry. I think the growth will be led by large institutions. This means that there will be a consolidation around digital protocols such as Bitcoin and Ethereum and maybe Solana, which have proven to be secure and already have size. The next phase will require them to be scalable and thats where Stacks comes in as the technology which can potentially scale Bitcoin - which is the fundamental and primary digital asset which institutions understand, trust and trade. The time of memecoins is about to end, as there will be growing focus on quality projects which have traction, developers and volume.

And that's why I think building on bitcoin is an attractive opportunity which excites me.

Look forward to connecting with friends interested.

Ali Farid Khwaja

Writing from Riyadh, Saudi Arabia