Bitcoin: It’s fundamental and institutionalization

Bitcoin’s price is at an all-time high 🚀, there are signs that it is here to stay for good as this price was not driven by hype, but by methodological risk-adjusted fund managers’ portfolio diversification. For years the early adopters have been raving: “buy bitcoin, buy bitcoin, buy bitcoin”. Now the early majority is finally listening 🙄. The cryptocurrency is becoming institutionalized. What does that mean?

It means that regulators are allowing big financial actors to use Bitcoin and other cryptos to offer services and products to their customers. It means that Banks like JP Morgan Chase and DBS (The largest Singaporean bank) are following through and setting up crypto exchanges. Institutional investors like hedge fund managers are allocating a small portion of their capital (in the billions of dollars) to Bitcoin. Publicly traded companies are also using it as a storage of cash 💰.

The COVID-19 pandemic has the world’s largest economies like the US, France, and Japan printing money like never before. For instance, 40% of all dollars in circulation were created (I use the word created deliberately) in the last 12 months. This means that inflation in some form, such as asset inflation, currency inflation, and goods inflation is playing out at some levels all over the world. What big players like traded companies are afraid of is their money, literally melting in the bank, with record low-interest rates, for long periods of time.

High-net-worth individuals and the mass affluent cannot help but be drawn to curves that go up over time. And pension funds are looking for ways to cover their massive 20%-80% fund shortfalls to cover their expected pensioners. That is partly why the share of Bitcoin being held for the long term (1–5+ years) has become the majority in the last two years. (I love the correlation matrix below, it brings things into perspective). Robert Kiyosaki (popular real estate investor and financial education author) has been calling this “people’s money” for years.

For investors, we know that we are in an era where uncertainty abounds, and even a small allocation such as 1–10% of your capital allocation could be a reasonable hedge (let’s call it insurance against the stupidity of financial and political leaders) you need. And with a convergence scenario where that could be 10x-20x if everyone did it, then the sooner you invest in Bitcoin (although I prefer to say hedge in Bitcoin) the better.

For entrepreneurs, you have an opportunity to receive an asset as a means of paying you for your products. Yes it is still volatile, and yes it is not considered decentralized finance (DeFi) yet, but accepting it as a portion of revenue could be a new “growth-bearing” line item in your financial statements (somewhere between “bank interest” and “provisions”). Also, consider the world where you no longer need to wait 1–2 working days for payments to clear, and all the fees in between vanish. I like that world. Every dollar you allocate to bitcoin the faster that future accelerates towards us.

What are your thoughts? What opportunities are you seizing in this space

credit: Slides from ARK-invest Big Ideas report 2021.

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