From Refugees To Hedge Funds: Bitcoin's Universal Appeal

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Bitcoin has reached an interesting inflection point. Whereas at one point its primary use was for black market sites like Silk Road, bitcoin has now found an almost universal appeal. It has become attractive to people dealing with economic catastrophes, as well as to institutional investors like JP Morgan, Fidelity, and the Yale Endowment fund.

How can bitcoin serve those living on society’s margins, as well as the wealthiest entities in the world? It turns out, a digital currency that is borderless, apolitical, and decentralized has universal appeal, regardless of socioeconomic status or country of origin.

Bitcoin’s Appeal for Economic Upheaval in Fiat Economies

Between hyperinflation in Venezuela, political instability in Hong Kong, and uncertainty in the United States due to the trade war with China, bitcoin has become a “go-to” currency for those experiencing turmoil in fiat markets.

Data from Grayscale suggest an inverse relationship between monumental market events and bitcoin’s value, with Brexit, Grexit, and the US-China trade war all cited as occasions when interest in bitcoin surged.

Political unrest in Hong Kong brought bitcoin prices to a 4 percent premium in the city. As election uncertainty proliferated in Argentina, bitcoin was trading “10% higher than on many international crypto exchanges” according to reporting by Bloomberg. Given the Chinese government’s manipulation of its own currency, the Yuan, demand for bitcoin is also up in China. 

With so many examples around the world of bitcoin being used as a safe haven, Anthony Pompliano, crypto influencer and CEO of Morgan Creek Digital Assets, expressed the importance of assets that “cannot be manipulated by a single country or politician.”

His statement underlines the distinguishing characteristics of bitcoin—digital, decentralized, and peer-to-peer— which make it so valuable to those suffering the economic fallout of poor government decision-making. 

Nexo’s Managing Partner Antoni Trenchev shared these sentiments in an interview with CNBC’s Squawk Box Europe, saying, “I think the beauty of Bitcoin is the fact that it’s truly decentralized and that makes it censorship resistant.”

Bitcoin’s Appeal as a Portfolio Diversifier for Institutional Investors

Bitcoin’s defining attributes also make it a smart portfolio diversifier for institutional investors. Pompliano recently made the following prediction via Twitter:

Bitcoin will eventually be in every institutional investors' portfolio. Just a matter of time.

Here is a piece of the conversation @JoeSquawk and I had about this idea.https://t.co/Y4CAFhnivb

— Anthony Pompliano 🌪 (@APompliano) August 20, 2019

Current developments in crypto seem to back-up Pompliano’s forecast that institutional investors will soon leap into bitcoin investments, if they haven’t already. Bakkt, a digital asset infrastructure provider backed by the Intercontinental Exchange (ICE), recently announced its bitcoin futures contract will be available to investors this September. The futures exchange is likely to attract more typical finance clientele, such as hedge funds and asset managers.

In other news, Coinbase recently acquired Xapo in a move that will allow the platform to add cryptocurrency custody to their current slew of services. When the announcement first aired, Coinbase CEO Brian Armstrong tweeted:

https://twitter.com/brian_armstrong/status/1162185049699057664?ref_src=twsrc%255Etfw%257Ctwcamp%255Etweetembed%257Ctwterm%255E1162185049699057664&ref_url=https%253A%252F%252Fwww.ccn.com%252Fcoinbase-ceo-just-revealed-a-big-catalyst-for-bitcoins-price%252F

If the content of Armstrong’s post is true and $200-400 million per week is flowing into the exchange from institutional customers, it’s safe to assume institutional demand for bitcoin is on the rise.

This leads us to the question, how do we square the participation of traditional financial institutions, which are almost always centralized, with the spirit of decentralization that is intrinsic to bitcoin and other cryptos? CEO of Celsius Network Alex Mashinsky encapsulated this paradox in his tweet:

https://twitter.com/Mashinsky/status/1162569762645393409

Bitcoin is for Everyone

The apolitical nature of bitcoin means it is unbiased, as far as who its users are. Whether you are a refugee escaping a war-torn country, or a hedge fund manager seeking to diversify your portfolio, bitcoin can provide a store of value that is impervious to manipulation by governments, and whose value is often inversely correlated with fiat markets.

Pension funds, reeling due to the “once-unthinkable collapse in global bond yields,” and investors of all nationalities and levels of net-worth should consider investing in assets outside of traditional markets—especially bitcoin. 

Cole Walton is a Registered Investment Advisor at Kanos Capital, Co-Founder of Plouton Group and Seed Investor of Plouton Mining.

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