Has BTC matured to be a safe investment play?
Bitcoin has often been described as the “digital gold” of the 21st century, but is the cryptocurrency truly reliable as a new safe haven against financial uncertainty and inflation? The question is a difficult one to answer, but the actions of a number of major institutions and the sentiments of some well-renowned investment managers suggest that Bitcoin (BTC) is becoming more attractive as a hedge against these fears.
Business analytics firm MicroStrategy has led the institutional charge into Bitcoin over the past six months, having purchased more than $1 billion worth of BTC after adopting the cryptocurrency as its primary treasury reserve asset. The company now holds approximately 70,784 BTC.
MicroStrategy’s CEO, Michael Saylor, has been abundantly clear in his assertion that the preeminent cryptocurrency is a superior store of value over fiat money, and he’s put his Bitcoin where his mouth is since August 2020.
Meanwhile, Grayscale Investments has been vacuuming up Bitcoin in recent months and has firmly established itself as the largest digital asset manager in the world. Grayscale’s Bitcoin holdings are a significant contributor to its overall portfolio, with its roughly 648,000 BTC valued at over $20 billion, according to the latest data from the firm.
Following in the footsteps of these proverbial Bitcoin trailblazers, SkyBridge Capital launched its own Bitcoin fund in December 2020. Skybridge was founded by American financier and former White House Communications Director Anthony Scaramucci, who has delivered some very bullish statements about Bitcoin’s future as a safe-haven asset.
Scaramucci and SkyBridge executive Brett Messing penned an op-ed published by CNN that portrays BTC as an increasingly attractive option for long-term investors looking for shelter from inflation. The pair said that increased regulation, improved infrastructure and financial institutions offering exposure to cryptocurrencies have “made bitcoin investments as safe as owning bonds and commodities like gold, which are also used to balance portfolios.”
Bitcoin and the wider cryptocurrency space have been thrust into mainstream consciousness once again as BTC, Ether (ETH) and other altcoins have hit all-time highs over the past two months. What remains to be seen is if Bitcoin will indeed become less volatile and live up to the hopes of Scaramucci, Saylor and others who see the cryptocurrency becoming a new-age safe-haven asset.
There has been an overarching sentiment that the current cryptocurrency boom is inherently different from previous periods of considerable growth. Driven by a force of institutional interest, cryptocurrencies are seemingly becoming a more reputable investment for individuals and institutions alike.
Pavel Matveev, CEO of cryptocurrency payments firm Wirex, told Cointelegraph that the perception of Bitcoin may well be changing despite the fact that it still retains its notoriety for extreme price volatility.
Matveev said that the price of Bitcoin is still three times more volatile than the S&P 500 index, while more recent haywire movements in value have been driven by macroeconomic factors like the COVID-19 pandemic and resulting fiscal measures by governments to address the situation:
“The most volatile drivers of the BTC price have been its limited supply and its booming demand from institution-grade investors. That being said, the QE measures and the low to negative rates environment did increase liquidity to historical levels. Naturally, the choice for a company to allocate a small portion of treasury funds in a rallying Bitcoin when the value of the Greenback is collapsing is natural.”
A pertinent question for many is whether Bitcoin and other cryptocurrencies like Ether are now becoming more trustworthy, long-term investments amid continued economic uncertainty. Matveev noted that institutions, which are typically long-term holders, will have made informed decisions when looking to invest in BTC.
Bitcoin’s positive track record for long-term appreciation has been a driver of interest from institutions, and Matveev also noted that some publicly listed payments companies have committed to integrating Bitcoin into their core activities, which adds further credence to the performance of BTC’s price. However, he conceded that this “doesn’t change Bitcoin’s high market volatility in the short-term” but at least makes it an eligible investment.
Kris Marszalek, CEO of Crypto.com — an exchange and crypto card issuer — noted to Cointelegraph the impact that institutional investment is having on the cryptocurrency markets and suggested that their continued involvement could bring balance to the space: “Investing in Bitcoin today is different than it was in 2017, when it was primarily retail-led and thus prone to more dramatic market movements.” He added:
“Today we are seeing large investors like Michael Saylor at MicroStrategy who have taken large Bitcoin positions with a long-term thesis based approach. A large part of their thesis is that BTC is not only a hedge against inflation, but a better hedge than gold. Their size and thesis may bring more long-term stability to the Bitcoin market.”
Marszalek also highlighted the fact that some renowned traditional financial asset management firms like Fidelity and JPMorgan Chase have started to advocate for clients to have a 2% to 5% exposure to cryptocurrency in their portfolios. He believes it’s evidence that the tide is shifting: “There’s no doubt that perception of BTC has turned a corner. As a result BTC is safer than it used to be as a long-term hedge, but still carries risk like any other investment.”
Regulation plays a role
As interest in the space continues unabated, questions around regulation are still a prominent point of discussion in the potential long-term adoption and appreciation of cryptocurrencies. Wirex’s Matveev agreed that regulation could well have an influence on cryptocurrencies being considered conventional, long-term investments in the next few years, adding further:
“Like with all investments, there’s an element of risk so it wouldn’t be right to say that any investment is 100% safe as the markets are constantly changing, but I think public opinion is beginning to sway towards seeing crypto as a great alternative to regular payments.”
Renowned hedge fund manager Ray Dalio also waded into the Bitcoin conversation at the end of January in a personal post on LinkedIn. Dalio is well-known as a proponent for Gold as a long-term investment and store of value. In his essay which he penned in an effort to avoid ‘media misinterpretation’, Dalio described a number of reasons why he believes Bitcoin has become an “alternative gold-like asset”. At the same time, Dalio believes that the limited supply of Bitcoin is a point of contention, as other cryptocurrencies that fulfil a similar role could negate its finite supply.
While he noted the apparent success of Bitcoin as a new invention in the decade since its inception, Dalio also highlighted the fact that governments and banks will not simply let a competitive system upset their control on the global economy especially when it comes to the ‘privacy’ that Bitcoin affords users:
“It is hard for me to imagine that they would allow Bitcoin (or gold) to be an obviously better choice than the money and credit that they are producing. I suspect that Bitcoin’s biggest risk is being successful, because if it’s successful, the government will try to kill it and they have a lot of power to succeed.”
With his firm operating across multiple jurisdictions, Marszalek has direct experience working with regulators, and he highlighted its base in Malta as a prime example of the potential benefits of clear, fair regulatory parameters: “2020 was a year where regulation for cryptocurrencies advanced quite a lot. […] Malta is one of the few jurisdictions in the EU that have developed a clear digital assets regulatory framework to protect investors.”
While the outlook for Bitcoin and the cryptocurrencies markets is in a very positive space, there are still prevailing risks associated with investing in the space. The cryptocurrency market is still in its infancy and, as highlighted above, some areas still need to be addressed before Bitcoin and other cryptocurrencies would truly become tried and trusted long-term investments.
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