Fidelity Investments’ Director of Global Macro, Jurrien Timmer told investors that bitcoin may be emerging as a legitimate hedge against inflation and a stable store of value as a form of "digital gold."
He said, that in his view, “bitcoin has gone mainstream."
This is truly noteworthy because Timmer is not a part of Fidelity’s digital assets arm, but rather as a part of the broader company. This is important to me because it shows that Bitcoin and cryptocurrency, in general, are receiving an increasingly warm welcome on Wall Street. Timmer noted in regard to Bitcoin’s model, that if it is evaluated against simple supply and demand metrics, demand continues to grow "exponentially" while supply remains fixed. That scenario does not apply to gold, whose annual production has remained steady over time. "Bitcoin supply, by design, is finite." And this is something that I have shared with you in previous podcast episodes. Bitcoin has a fixed supply that will never exceed 21 million coins, and currently, we are just above 18.6 million in circulation. However, one thing to note here is that there have been coins lost – meaning that people have lost access to their Bitcoin wallet, Bitcoin has been sent incorrectly and lost. And to further restrict supply, large institutions have been purchasing massive amounts of Bitcoin, such as Tesla for example. This is in direct contrast to the US Dollar which continuously prints money. Your dollar’s purchasing power decreases over time whereas Bitcoin’s increases. Timmer also said the monetary environment naturally favors bitcoin. "With interest rates close to zero – or negative – and central banks printing money like there's no tomorrow, is it any wonder that bitcoin seems to be having its day?" While Timmer admitted bitcoin's risks he concluded that "For those investors, the question of bitcoin may no longer be 'whether' but 'how much?'" He also said that he expects bitcoin "overtime" will take more market share from gold.
The second headline comes with a different tone regarding cryptocurrency investments. New York State Attorney General, Letitia James, published a statement this morning telling investors that digital assets are “not prudent” and alerting them to the risks involved with investing in cryptocurrencies. The main risks she points to are that the underlying value is highly subjective and unpredictable, there is increased risk of market manipulation, and the difficulties with cashing out of investments. This warning seems to come on the heels of several large institutions investing in Bitcoin, like Tesla which I mentioned earlier. However, banks have now slowly started offering services for retail investors. Many of these large institutions have publicly announced their beliefs for Bitcoin and the cryptocurrency industry, and all of them are positive outlooks, something that certainly bodes well for the industry. Attorney General James’ is no doubt exercising caution for the industry, which is understandable. She also issued a statement regarding industry participants, saying that “We’re sending a clear message to the entire industry that you either play by the rules or we will shut you down.” This statement follows the recent suing of Coinseed and after settling an inquiry with Tether and Bitfinex. While there has never been any doubt that firms in the industry need to follow rules and guidelines, the doubt comes from those guidelines themselves. Due to the lack of clarity and regulatory framework, many companies attempt to navigate some of the unknown territories by simply following best practices, which may not be enough in the eyes of the government and SEC. This is why I have constantly been calling for them to provide the framework and guidelines required for companies to follow. This way we do not end up in a situation where a company is punished for entering the new, unexplored territory, but rather works with the SEC and government to set the proper guidelines. We should learn about guidelines through enforcement.
The final headline follows the institutional buying of Bitcoin and cryptocurrency. Citibank recently reported that Bitcoin could become the currency of choice for international trade. As per the report, Citibank states that “Bitcoin is at the tipping point of its existence” following large institutional investment and growing regulatory framework. The report concludes that “the fact that this progress has occurred in just over a decade makes Bitcoin remarkable regardless of the future.” Which is certainly true. There has never been any other asset, currency, security, or commodity that has gone from $500 to $50,000 in 5 years, and Bitcoin is clearly not done yet. As previously mentioned, as supply becomes restricted and demand continues to grow, so will Bitcoin’s price. And the interest in Bitcoin leads to further interest in the industry allowing the industry as a whole to boom.
I have previously noted that the cryptocurrency industry follows yearly patterns of Boom, Bust, Stability, and Growth. While 2017 was a Boom, 2018 was a Bust, 2019 was stability, and 2020 was Growth, we are no heading back into the Boom phase, which we can undoubtedly see as cryptocurrencies have been booming for the last 3 months. As regulators continue to implement the necessary guidelines and new companies pop-up to help build onto the phase, more and more investors continue to enter the market, smarter than before. As Fidelity and Citi both concluded on positive notes for the industry, some continue to voice caution for investors.
Moving forward, as always, I see great things for this industry!