Digital Assets Targeting New All Time Highs
"The smartest people are constantly revising their understanding, reconsidering a problem they thought they'd already solved. They're open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking." —Jeff Bezos
Institutions are Here
The backend of 2020 and the first quarter of 2021 will mark the period where large, traditional corporations, financial institutions and money managers started changing their attitudes towards the Cryptoasset market. It also signalled a fundamental shift in the reasons people were purchasing digital assets in the first place.
Some of the oldest and most respected financial institutions in the space have started offering Cryptoasset related products and services.
The oldest bank in America, BNY Mellon, has announced plans to start financing bitcoin and other digital assets and offer Cryptoasset services to their clients. Their Head of Digital, Roman Regelman, stated, "Growing client demand for digital assets, maturity of advanced solutions, and improving regulatory clarity present a tremendous opportunity for us to extend our current service offerings to this emerging field."
The largest U.S. bank (whose CEO once called bitcoin a "fraud worse than tulip bulbs") has also started offering Cryptoasset related products. They have most recently launched a 'Cryptocurrency Exposure Basket' that invests in bitcoin-related stocks. According to them, the companies "operate businesses that we believe to be, directly or indirectly, related to cryptocurrencies or other digital assets, including as a result of bitcoin holdings, cryptocurrency technology products, cryptocurrency mining products, digital payments or bitcoin trading."
Several large corporations converted portions of their treasuries into bitcoin in the latter half of 2021 and into 2021. They have all done it for different reasons, but most revolve around one theme: protecting their cash holdings.
The most infamous was that of Michael Saylor's MicroStrategy. They converted their entire treasury to bitcoin and currently hold 91 326 in total. Since then, he has been an outspoken proponent and has even hosted conferences where he shares a 'corporate playbook' about how others can go about investing safely in the space.
"Cash is now a liability; it's no longer an asset. That has profound implications for corporate balance sheets" - Michael Saylor.
Square, the payments company founded by Jack Dorsey, has also converted a portion of their balance sheet to bitcoin. They currently hold 8027 bitcoin in total. They have also been investing in the bitcoin ecosystem and are trying to help scale bitcoin payments for the everyday user.
"Aligned with the company's purpose, Square believes that cryptocurrency is an instrument of economic empowerment, providing a way for individuals to participate in a global monetary system and secure their own financial future."
The electric vehicle behemoth Tesla also converted $1.5 billion of its cash holdings into bitcoin. This brought its holdings up to 48 000 bitcoin in total. We guess that Elon saw potential in the applications and possibilities presented by bitcoins energy which you can read about in the Etherbridge blog. However, they also realised that holding cash from now on may be detrimental to generating shareholder value.
The company changed its investment policy and bought bitcoin for "more flexibility to further diversify and maximise returns on our cash."
Several well-known investment managers have also changed their attitude toward bitcoin and have started to include it in their various portfolios for different reasons.
Paul Tudor Jones
Famed macro investor Paul Tudor Jones made the allocation as an inflation hedge due to the Federal Reserve's monetary policies to combat the effects of Covid on the economy.
"I came to the conclusion that bitcoin was going to be the best of inflation trades, the defensive trades that you would take."
Ark Invest, headed by Cathie Wood, has also added bitcoin to several portfolios. She has stated that it is a hedge and will act as an "insurance policy" in a world of low rates and quantitative easing.
On their website, the strategic reasoning behind the offering was, "Since the emergence of Bitcoin, we have witnessed the rise of a global battle among monetary systems, both sovereign and non-sovereign. ARK believes cryptocurrencies governed by neutral, open-source networks have the potential to win this battle. By unlocking a new mechanism to store and transfer value, cryptocurrencies have the opportunity to create an open foundation of strong assurances in wealth and monetary integrity."
Bill Miller, the veteran Wall Street investor, has made provisions for his flagship fund, The Miller Opportunity Trust, to invest as much as 15% of its assets into bitcoin. This is also an attempt to hedge cash's rapid devaluation. He has repeatedly stated that the market underestimates the risks of inflation, and in a newsletter to investors at the end of 2020, he noted, "Warren Buffett famously called bitcoin rat poison. He may well be right. Bitcoin could be rat poison, and the rat could be cash."
Stanley Druckenmiller, the Wall Street legend who has generated an annualised return of over 30% throughout his career, has also said that bitcoin may act as an inflation hedge. In 2017 he had a very different view of the asset, even going so far as to say it would never be a medium of exchange and he "didn't want to own bitcoin".
Towards the end of 2020, however, he "strongly" recommended buying the asset. He also stated, "Bitcoin could be an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money". He also believes that "Frankly, if the gold bet works the bitcoin bet will probably work better because it's thinner, more illiquid and has a lot more beta to it."
Ray Dalio runs Bridgewater, the largest hedge fund in the world. He has been a big proponent of hard assets when navigating a debt crisis and has published several articles detailing how he sees the world progressing over the next few years. He has placed specific consideration on previous periods where central banks have taken similar actions.
Regarding Cryptoassets, he has been sceptical of bitcoin for a while but has slowly started to understand it and has one of the more unique views on the asset. According to Ray, "Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn't mind losing about 80% of."
We have steadily been witnessing a general shift in attitude and opinion toward the digital asset market. Companies that wouldn't touch bitcoin and other digital assets a few years ago are now investing heavily into the infrastructure that will allow the market to mature and reach its full potential. From banks to corporations and well-known money managers, the shift is happening. People are starting to realise that there is an alternative to the traditional financial system. They are trying their best to position themselves for the future, or they risk getting left behind. Innovation and progress wait for no one.
Notable Articles and News Stories This Week:
Bloomberg Foresees Bitcoin Rallying to $400K This Year
The Crypto analysts at Bloomberg have predicted that if bitcoin follows similar price patterns to its previous bull rallies, the price could go as high as $400 000 this year. While we believe that this price target may be unrealistic for 2021, there is nothing to say that it won’t achieve these price levels in the future. The analyst cited the halving and subdued volatility as reasons it may rise to these levels this year or in the future.
Read more of the analysts’ comments here
Grayscale Adds Chainlink to Its Digital Large Cap Fund
Chainlink, the token of the oracle network, has been added to Grayscales large-cap fund. Chainlink is one of the core assets of the Etherbridge Fund, and the news is very positive for the asset. It will replace XRP, which was removed after it experienced regulatory issues with the SEC. Chainlink is an oracle that bridges smart contracts to the real world, significantly increasing the range of applications. The Grayscale Large Cap Fund has just over half a billion dollars under management.
Read more here
Caruso Properties to Accept Bitcoin for Rent, Allocates 1% of Treasury to Asset
Caruso Properties, the Californian real estate company, has announced it will accept bitcoin as a means to pay rent. In a partnership with Gemini Exchange, the Winklevoss Twins company, tenants will be able to pay their rent directly to Caruso in bitcoin. This is the first step as they enter the cryptoasset market and have explained, “This partnership marks the beginning of a holistic, long-term relationship intended to bring cryptocurrency, non-fungible tokens (NFTs), and blockchain applications to Caruso properties as a way to engage the millions of visitors throughout their ecosystem.”
Read about it here
Bitcoin’s Lightning Network Now Has 10K Active Nodes and $69M in Locked Value
The Bitcoin Lightning Network is a layer 2 scaling solution for bitcoin that uses its own consensus to facilitate cheaper, faster transactions. It makes bitcoin more useable for the day to day person. In April of 2020, there were around 5300 active nodes on the network; in a little over a year, they have doubled that to 10 000. There are now over 45 000 two-way payment channels on the network and over $69 million worth of bitcoin is held on the network. The Lightning Network's success signals to people that bitcoin is out there and is starting to be used. As bitcoin continues to be adopted as a medium of exchange we expect exciting things in the future.
Read more about it here
Whilst we all have the option to look, to seek to understand, it’s often easier not to. Bitcoin, Ethereum, and distributed ledger technology are complex systems that require significant due diligence. At Etherbridge, we aim to lower the barriers to understanding this fast-growing digital economy.
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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments.