Every day may be Christmas Eve when Bitcoin has grown to a real asset class

Every day may be Christmas Eve when Bitcoin has grown to a real asset class

17. joulukuuta 2020 Autor Mikael Syding

During the late summer and autumn, the software company MicroStrategy invested its entire cash of USD 550 million in Bitcoin. Now in December, the company has also issued a bond of USD 650 million (0.75% interest) with the intention of buying Bitcoin for.

MicroStrategy (Nasdaq: MSTR) has in recent years shown a stagnant turnover of approximately USD 500 million per year and a profit in 2019 of only 34 million. A few years ago, 2015-2016, the profit was up to 100 million per year, which explains how the cash could be increased by 500 million between 2010 and 2017. CEO Michael Saylor got tired of the lack of investment options, and QE and the news flow around Modern Monetary Theory eventually made him realize that Bitcoin is the only truly future-proof asset. Perhaps the most fascinating thing in history is that bond buyers have so few interesting ideas that they think that 0.75% interest is well paid to be exposed to a relatively small and stagnant software company where the greatest security is one billion dollars in Bitcoin.

As I see it, MicroStrategy is only out pretty early. Although "everyone" talks about Bitcoin, there are very few who actually know what it is or understand how the technology works, why the technology is secure, why it can not be hacked, manipulated or inflated. At the level of 19,000 USD / BTC, the total amount of Bitcoin (21 million) that can be created is worth 400 billion dollars. By comparison, the market value of all gold in the world (1825 USD / oz) is approximately 11,000 billion dollars. Most of that gold, however, is in the form of, among other things, jewelry (half of the annual production goes to jewelry), plus just under 20% is in reserve with the world central banks. The amount of gold that can be used as a "currency" or for investments right now is smaller, but still at least ten times as much as Bitcoin.

We are now at the very beginning of Bitcoin's life cycle. The first transactions took place in 2009 and it was not until December 2013 that the currency received more general attention in connection with the rapid price rush from 100 to 1000 USD / BTC. It can thus be said that the phenomenon is only 7 years old. I myself did not buy my first Bitcoin until the spring of 2016, at the price of 450 USD / BTC. Then it took until 2017 before the price rose above 1000 USD again and a slightly larger audience began to read about cryptocurrencies in earnest. At that time, I and some acquaintances actually tried to start a crypto fund, but despite large and long meetings with the most important leaders at some of Sweden's largest banks, it was not possible. This was because the banks did not want to risk getting dirty with a currency that could be associated with, among other things, money laundering - something they may experience with a regular fiat currency instead.

Source: XBT/USD, Bloomberg
Note: Past performance is no reliable indicator of future results.

The pandemic year 2020 has accelerated digitalisation in general, but also forced enormous monetary stimuli. Where $ 800 billion was considered completely crazy in the bottomless pit of the financial crisis of 2008-2009, $ 4,000-8,000 billion is now mostly a shrug. When the US increases the money supply M2 by 25% in a single year, then MicroStrategy's CEO Michael Saylor could no longer just look at how the company's cash in practice lost $ 125 million in value. In addition, he understands as well as I do that the reason for the need for stimuli is the already unsustainable mountains of debt. More money will be needed at an accelerating pace to keep the system alive one block at a time. You can try to hide in real estate, forest, gold or even history's most expensive stock market, but the cheapest and safest place is the currency that cannot be inflated. There are only 21 million Bitcoin and these should be enough for the demand from all future Saylors who want to invest 1% or 200% of their cash in an inflation-protected asset. In the autumn, banks in the USA got the green light to store Bitcoin, which opens up for investment banks to create products and recommend ownership to their customers. In addition, Bitcoin ETFs are likely to follow suit, and then Robinhood and similar accounts will find their way there. Some will surely take their 1000% in Tesla and make 10 times the money again on Bitcoin. Last week, an insurance company in the US bought Bitcoin, which requires approval from the Fed. All insurance companies have the problem that they have to invest their money in something that at least retains its real value. One insurance company will soon become two that attract over two more, and there are thousands of insurance companies with thousands of billions of dollars in investable funds.

Today, there are 18.56 million Bitcoin. The ceiling is 21 million. So there are only 2.44 million left to dig out. Right now, the production rate is 900 per day or 325,000 per year. Michael Saylor buys 60,000 of these. How many people buy 70 million unemployed Americans with stock accounts when the currency becomes more readily available? And how much Bitcoin is needed when bank after bank and insurance company after insurance company slowly learn the lesson about the Triffin paradox and the need for insurance against the erosion of the real purchasing power of fiat currencies. And just wait until the first central banks complete the gold bars with Bitcoin - perhaps in South America or Africa, or why not the intellectually awake Netherlands and Hungary to name a few.

These are rhetorical questions, because at today's price of $ 19,000, the economic bandwidth is far too low to handle the potential demand. No, if Bitcoin is to be able to handle the demand for an inflation-proof asset, the total value of Bitcoin must approach other "real" assets. If Bitcoin is to have the same total value as the free gold, we could be at 200,000 USD / BTC. If it is to correspond to all gold, including in jewelry, we would be talking about 500,000 USD / BTC. But if BTC eventually becomes a real, equitable asset class of 50-100 trillion dollars (like stocks, for example, but far smaller than the bond market), the unit price will be several million dollars per coin. As I said, we are at a very early stage and almost no one owns any Bitcoin. It is only every thousand living person who has a so-called wallet where you have your Bitcoin, and the total value of manufactured and distributed Bitcoin is only 350 billion dollars, as a single large listed company. In the future, you may receive your salary in Bitcoin or you will have to change your salary to Bitcoin to be able to shop in certain online stores. Then it does not matter if it is in 20 thousand or 2 million dollars, but it does not matter if you as one in a thousand, the real 0.1%, dared to put away a single Bitcoin today and got to be part of the transition from interesting experiment to new asset class. And if it feels awkward to handle real Bitcoin, you can actually buy your monetary insurance through Bitcoin- or broader crypto-linked products and switch over when you are more comfortable with the technology. As long as you are aware that high volatility may remain that we have seen in recent years and that there is no risk-free investment.

@Mikael Syding

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1.3.2021 17:37:55

 

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