The concept of ‘bifurcation’ is about as straightforward as one might expect. In essence, it’s referred to as the division of something large and making it into two smaller pieces. The bifurcation of Bitcoin has been a topic of discussion over the past few years. What are the two paths of Bitcoin and how are they conflicting?
What does Bifurcation mean?
‘Bifurcation’ means dividing a larger whole or main body into two separate units that are significantly smaller. This process happens when one company splits into two separate branches, thus creating two new companies. Moreover, these are companies that are both able to sell or distribute shares to stockholders. Companies will usually pursue bifurcation for certain tax benefits.
Bifurcation has applications that span across several fields of study. However, in the financial world, it typically illustrates the breaking of a larger entity into smaller divisions. Let’s say that a company decides to bifurcate and divide it into two separate companies. If this is the case, then shareholders in the original company receive the new company’s shares by way of a corporate reorganization.
The concept of bifurcation has other applications in various other fields. These include law, fluid dynamics, mathematics, economics, anatomy, and chemistry, among others. In each of the applications, bifurcation is indicative of the splitting of a certain element or system. Such types of separation include the splitting of a single hydrogen atom into two separate hydrogen bonds.
Bifurcation can also refer to loose market movements. Examples of this can be growth and value investments moving in different directions. Alternatively, it can be when both high-quality and low-quality securities move out of sync. In this particular case, one will end up performing substantially better than the other.
Corporate example of bifurcation
Hypothetically, a company may sever a division because the division possesses its own revenue stream. Either that or it has a business plan that’s a complete departure from the main company. Companies may also bifurcate because they are able to raise more capital from it. For instance, a food company selling numerous products may bifurcate the product lines into two companies. This way, the new company can acquire its own financing through the distribution of equity shares.
Moreover, shareholders might take advantage of the split. This is due to the new shares potentially rising at a faster rate than the shares of the united entity. Subsequently, bifurcation of publicly-traded companies usually has the opportunity for shareholders to earn money on stock price appreciation.
Be that as it may, a company might also detach from part of the company due to it being unprofitable. A company might bifurcate with the goal of selling one of the entities. If successful, then they will use the funds to reinvest in the remaining company.
There is one real-world example of bifurcation that applies to Gap Inc. In early 2019, Gap Inc. made an announcement. They would go through with a division and bifurcate the Old Navy brand from the Gap stores. Old Navy would become a stand-alone company, whereas the original Gap stores would also be one company.
Old Navy was generating $8 billion in sales by itself. Gap and the remaining stores under its wing meanwhile combined for a total of $9 billion in revenue in 2018 alone. Senior executives claim that the bifurcation would allow for Old Navy to expand and grow with its own business strategy. The NewCo, as the new company was referred to temporarily, includes The Gap and it thus able to go after a different business strategy.
Bob Phibbs, CEO of consultancy Retail Doctor, says that:
“This could have been an opportunity for a fresh start for Gap … It’s simply putting the NewCo brands though the ringer for another cycle of rinse and repeat.”
The future of Bitcoin is at a crossroads
Within the Bitcoin community, there appears to be a divergence in opinion on what path the asset should take. The inquiry was always there, but it has been garnering more attention during recent years.
On the one hand, there is the institutional adoption of the cryptocurrency. Specifically, it is the idea that institutions have started purchasing (or aiding the purchases) of Bitcoin as an investment.
On the other hand, there is decentralization. This means asserting control over one’s own monetary dominance and giving up the concept of a centralized authority running your system of money. Moreover, there’s the idea that anyone can participate in the network at a cheap price and for anywhere in the world.
There is an abundance of arguments that could be made about how both paths are important. However, when we take into account how institutes operate, it’s entirely plausible that they will clash one way or another. Regardless of that possibility, this does not necessarily need to be an issue. What will come of this will likely be a bifurcation in Bitcoin usage worldwide for different purposes.
This path stems from a number of beliefs. One is that Bitcoin will be seen by many as a superior form of money. This is primarily because of its monetary policy that institutional investors will adopt en masse. If this is the case, then these investors are the likes of pension funds, endowment funds, and insurers. There’s also the possibility of them being central banks.
Part of this institutional adoption is looking beyond the underlying advantages of the asset. From here, there’s also looking into whether there is a demand for people to buy, sell, hold, and trade bitcoin. If there is a penchant for a financial asset, institutions will provide ease accordingly. Should this be the case, then the investors will also likely include individuals.
Certain institutions like Fidelity are starting to develop their platforms, which could open doors to new things, for better or worse. On the surface, this doesn’t mean much and could very well be just another garden-variety business plan. However, when you apply it to the “rich get richer, poor become poorer” context that correlates with ‘institutionalization’, it becomes alarming. The “little guy” is not being given the opportunities that the “big guys” are.
Overall, we’re at a point in time when institutions are gradually seeking to gain control of Bitcoin and other cryptocurrencies. Specifically, those that derive from the U.S. Their catering target is chiefly the “big guys” and not the “little guy.” To a great number of people, this is bothersome and exposes the real worry about the bifurcation of Bitcoin.
Bitcoin is a practical tool for freedom because it allows people to store money away privately and securely, while transaction peer to peer for very little cost.
However, people have been long accustomed to storing money by way of a government they do not wholly trust. Should there be a high demand to keep money away from the government, and Bitcoin is successful in doing that, then countries may restrict it. Then, bifurcation may be weighing more on the institutional side of Bitcoin.
We are already seeing this with countries like Zimbabwe and China. But even there, we’ve seen the futility of cryptocurrency bans. But for a currency to work for people in these regions, it has to be decentralized, as with Bitcoin.
Yet centralized custodians, clearinghouses, and standard financial services organizations are under the influence of such jurisdictions by way of law enforcement. Even the biggest supporters of Bitcoin and its disruptive power should be sensible about the obstacles that can come with its adoption.
Let’s assume that Bitcoin is actually successful in obtaining this mainstream status. Should this happen, then we would naturally expect Bitcoin to maintain a dual-status across the globe. Censorship resistance is less appealing in countries that consist of people believing in the rule of law and central banks. Therefore, it’s fairly easy to view Bitcoin as a commodity. One that is comparable to gold with most of the assets being in possession of centralized institutions.
In parts of the world that are under oppressive governments, Bitcoin may be seen as an illegal – or heavily restricted – asset. Here, there would have to be a greater emphasis, and moreover, a greater need, of self-management of both wallets and keys.
The results that can occur from the bifurcation of Bitcoin provide plenty of discussion fodder. As previously mentioned, there are arguments that have reasoning as to why both paths are important. Still, one can’t deny that the outcomes of both are indeed a mixed bag.
But who knows what remains to be seen. Perhaps the way in which this bifurcation is managed will lead to something where both sides benefit. Though even that prediction may come across as more optimistic than realistic. As it is, we can only speculate.