“It tells us that Bitcoin has caught the attention and imagination of many people,” said Larry Fink, chief executive officer of asset-management giant BlackRock and Rieder’s boss, during a virtual conference on December 1. “But it’s still untested and a pretty small market relative to other markets.”
The last time Bitcoin skyrocketed in 2017, many wealthy investors largely stayed on the sidelines. The ersatz money was compared to the tulip mania during the Dutch Golden Age, and its utility as a money-laundering device in the digital underworld scared off many in mainstream finance. Warren Buffett called Bitcoin a “mirage” and Jamie Dimon said it was a “fraud” (although he later expressed regret for that remark).
Since then, Bitcoin has yet to prove it will truly become a form of universal money accepted around the world. And many affluent investors such as Armbruester believe alternatives such as Ethereum may ultimately prove more valuable. Moreover, cryptocurrencies are traded in an opaque market driven by rampant speculation and arcane technology, rather than the easy-to-see fundamentals that drive stocks or bonds or commodities.
Even so, affluent investors are giving Bitcoin a serious second look as it wins mainstream acceptance by influential players such as PayPal and Visa, both of which are enabling account holders to use crypto. Miller is one of many traditional investors who’s noted that the stability of Bitcoin and its 12-year-old technology, blockchain, is bolstering confidence in its staying power.
COVID-19, the US election, Brexit, and 2020 have altered the way many in traditional finance view the value of digital assets.
— Kevin Murcko, founder and CEO of CoinMetro
Meanwhile, other investors are opting to back the new generation of database and financial software inspired by Bitcoin. “We have allocated to blockchain and distributed-ledger technology-focused funds and companies recently, and we will continue to allocate more,” says Bobby Console-Verma, the founder of London-based technology firm, 1fs Wealth, who also manages money for his investment office.
Then there’s the moves by central banks and governments to flood economies with cash and drop interest rates to near zero to address the coronavirus pandemic. This massive wave of quantitative easing and fiscal stimulus, which shows signs of continuing next year, is also burnishing cryptocurrencies’ credibility as an alternative asset class.
“Normally in times of crisis people run to cash, but who in their right mind wants to be cash-rich at a time when major economies are devaluing their currencies?” says Kevin Murcko, the founder and CEO of CoinMetro, a cryptocurrency exchange based in Estonia. “You could say that COVID-19, the US election, Brexit, and, well, the entirety of 2020 have altered the way many in traditional finance view the value of digital assets.”
How long that may last is unknown. But analysts at JPMorgan say investors have been withdrawing cash from gold funds at the same time Bitcoin is winning over more institutions. The Grayscale Bitcoin Trust, a listed security popular with money managers, has seen inflows of almost $US2 billion since October compared with outflows of $US7 billion for exchange-traded funds backed by bullion, according to a JPMorgan report this week.
The analysts’ calculations suggest Bitcoin only accounts for 0.18 per cent of family office assets, compared with 3.3 per cent for gold ETFs. Tilting the needle from bullion to the cryptocurrency would represent the transfer of billions in cash.
“The adoption of Bitcoin by institutional investors has only begun,” wrote the analyst team led by Nikolaos Panigirtzoglou.
Tania Modic, a wealthy investor based in Lake Tahoe, Nevada, says she’s bought Bitcoin for years, partly as a “convenient store of value” free of the hassle and expense of handling and storing physical gold. Yet Modic says don’t discount the psychological and cultural forces driving the wealthy to warm up to crypto.
First, there’s FOMO, which is running high in the affluent circles she moves in. Then there’s all the young people who are scooping up crypto on Robinhood and other trading apps.
Bitcoin trading on eToro, a platform that’s popular with amateur investors in Europe and Asia, is running close to the boom in late 2017, according to the firm. Additionally, the number of women going into Bitcoin on the site has doubled compared with the last bull run.
“The big boys are putting their funds into Bitcoin as a hedge against being called Neanderthals who missed the crypto boat,” says Modic, the managing member of Western Investments Capital, her investment family office. “And let’s not forget that they all have millennial kids or grandkids rooting them on.”
Bloomberg
