Bitcoin gains trust among institutional investors. Why?

Big investors started seeing #Bitcoin as a hedge, also thanks to the free advertising of the central banks.

Bitcoin hasn’t changed. It’s volatile as usual, with growing exchange volumes and new active wallets, oscillating in a range between $8000 and $10000 in the last few weeks. The third Halving, which occurred last May 11, has not shaken the market, as expected in the short term.

What has changed is the global economy, which has been much more affected and stopped by the epidemic.

So in the current uncertain situation, why invest in an asset that is notoriously unstable and, also for this reason, opposed by the mainstream finance?

Yet, Bitcoin has got attention and even more trust in the finance which matters in the last few weeks.

We might think that the main reason is the negative correlation between Bitcoin and stock markets, but Bitcoin does not guarantee even this anymore. Actually, when the stock markets collapsed at the beginning of March, Bitcoin and crypto market followed them.

So the main reason of the renewed attention to Bitcoin is not about the kind of correlation with the stock market, but it is related to the total absence of correlation with the monetary policy of central banks.

We are reminded about it by a message in the block number 63000 which has led to the Halving on last May 11, published on the Bitcoin blockchain by the miner, AntPool:

“NYTimes 09/Apr/2020 With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue”.

The message refers to a New York Times article about the new record of printed billions by the Federal Reserve to face the economic consequences of the lockdown, an amount of liquidity which considerably exceeded the one of the bailout during the financial crisis of 2008.

The reference is double because it is meant to remind another article published by The Times on January 3th, 2009, and included in the first block of the Bitcoin Blockchain — the Genesi Block — released by Satoshi Nakamoto. It went down in history, at list in the one of crypto economy.

For bitcoiners who have seen the Halving as a historic step, the message was a clear homage to the inventor/inventors of Bitcoin and to the original vision of a global and decentralized coin alternative to fiat currencies.

Probably the message was not got with the same excitement in the traditional finance environments, but what is getting clearer is the potential rule of Bitcoin as a hedge from the expected consequences of current monetary policies.

After all, hedge fund priority is the hedging of a portfolio before increasing earnings and in a diversified portfolio high-risk investments can balance other kind of risks.

In this way, Bitcoin becomes interesting not only for crypto funds.

Paul Tudor Jones, Founder and CEO of the Tudor Investment Corporation and initially skeptical about cryptocurrencies, said on the CNBC that his portfolio included BTC since “The best profit-maximizing strategy is to own the fastest horse”.

Actually, Bitcoin has been so far the best-performing asset of 2020. Yet, Jones’s confidence does not come from a short term bullish view, but from the historical trend of Bitcoin which, despite its volatility, has turned out to be the most performing asset of the past ten years, basically since the Bitcoin existence.

Jones is not the only one to see Bitcoin as an asset in the protection of inflation, which is expected to increase also according to other Wall Street veterans like Ray Dalio, as an inevitable consequence of the unprecedented intervention of the central banks.

Michael Novogratz, ex Goldman Sachs partner, now CEO of Galaxy Capital — a commercial bank working as ‘a bridge between the crypto and the institutional worlds’ — has invested in the crypto market for some time and he’s sure that we’re coming into a kind of perfect storm for Bitcoin.

Like Novogratz, Tim Draper expects that the invasion of the trillions printed by the Fed will lead to seeing Bitcoin as a store of value as a result of the devaluation of fiat.

Actually, despite the expected volatility of a still young market, the predetermined digital scarcity of Bitcoin can make it a hard money, subject only to market and independent from any central monetary policy.

The fact that confidence in Bitcoin is growing in traditionally opposed environments, does not mean we are close to a common legitimation in the financial system. There are interests involved which can be compromised if the trust in Bitcoin as a speculative asset becomes a wider trust in the Bitcoin original and more radical vision of a decentralized monetary system. In decentralized finance, the services which are currently provided by traditional banks and funds would come into competition with DAOs — Decentralized Autonomous Organizations. They already exist and they are growing, providing financial services mainly based on protocols and smart contracts on another strengthening blockchain, Ethereum.

Goldman Sachs, in a recent call conference organized a few days after the Paul Tudor Jones interview, urged investors to avoid investments in Bitcoin and cryptocurrencies, stating that they are not asset class. The Crypto Twitter has revolted.

Others reminded that Goldman Sachs, just in the past August, published an analysis in which a bullish Bitcoin market was expected showing an investment opportunity.

Well, recently stability is not trendy in any environment, but what we can easier expect is that central banks will continue to advertise “for free” Bitcoin. Maybe even the more skeptical will be convinced that a virtual coin — if it is based on a solid technology and on a working stock-to-flow model — is a real asset, though digital.

After all, is trust — which is for many the base of markets — touchable?

The article was posted in Italian on LoeniBlog.