“The bottom line is that demand for Bitcoin is permanent,” Morris says. “There was liquidity – people were able to sell – through the various bear markets Bitcoin has already experienced, whereas it disappeared in other parts of the cryptocurrency market. Will demand grow? Until more professional investors own it in their portfolios, until other investors do, there is the scope for growth.”
The rise of artificial intelligence is also a positive development for Bitcoin, according to Morris. He says AI will soon be initiating transactions by itself, without human involvement, and when that happens “there will be no room for normal banks because there will have to be better technology – we’ll need a form of money that’s able to deal with computers”.
Bitcoin is the obvious solution.
Morris says the current cycle should see the price of Bitcoin averaging $100,000, compared with $30,000 over the previous cycle.
“Bitcoin tends to do well in the year before a halving and in the year after one,” he says.
Falling interest rates should also be positive for the cryptocurrency because investors have less to lose in interest if they choose Bitcoin instead of cash savings.
The creation of “exchange-traded funds” or ETFs that can hold Bitcoin directly, is also expected soon after the objections of American regulators were overruled. This too suggests there is good reason to be bullish.
“Bitcoin always comes back stronger,” Morris says. “The bear market is over, the cycle has turned. Bitcoin is the king of crypto and is going to be a bigger part of portfolios.”
The case against Bitcoin
Duncan MacInnes can hardly be accused of being a died-in-the-wool Bitcoin sceptic. It was he who persuaded his colleagues at Ruffer, the investment manager, to invest 2pc of their portfolios in the digital coin in 2021, an investment that yielded a rapid profit of more than £1bn, one of the most spectacular coups in the recent history of fund management.
So his belief now that Bitcoin’s moment is in the past, and its absence from both his own personal portfolio and those run by Ruffer, are worthy of our attention.
“I was a Bitcoin zealot,” he tells Questor. “I have never believed in anything so much. We invested during the pandemic and it was the perfect asset for that moment. Trust in institutions was failing, interest rates were zero and everyone was at home [looking for investment opportunities on their computers].”
Now, 15 years after its invention, he says he is “not sure what Bitcoin is for”.
“It’s not suitable as a payment tool, it has failed as a hedge against the recent bout of inflation and the context has changed so much,” he says. “Money printing via quantitative easing has gone into reverse and the market is less obsessed with technology across the board.”
He adds: “So much money was poured into cryptocurrency by venture capitalists and so many intelligent people got involved yet it’s hard to point to any concrete results of all that money and effort and now there are new things to be excited about such as AI.
“At about the time Ruffer invested people were talking about a wall of institutional money going into Bitcoin, but it didn’t happen. If a true Bitcoin ETF had been launched then, it would have attracted huge amounts of money. But now I don’t think anyone cares, I don’t think there is pent-up demand. And I think I can prove that.”
He draws attention to the Grayscale Bitcoin Trust, a quoted American investment fund that owns Bitcoin and whose managers were instrumental in overturning the refusal of American regulators to authorise Bitcoin ETFs. As a quoted fund Grayscale can, just like a British investment trust, trade at a premium or a discount to the value of its assets.
“In 2020 Grayscale was trading at a premium of 20pc but that discount gave way to a double-digit discount. Why would you invest in an ETF and by doing so pay the full price for the Bitcoin it holds if you can buy it at a discount via Grayscale? That discount showed that there wasn’t demand.”
Another development that he expected to improve sentiment towards cryptocurrencies at the time Ruffer invested has also not come to pass, MacInnes says.
In a reference to the numerous frauds to have taken place at crypto exchanges, he says: “People thought that the arrival of institutions such as ourselves as crypto investors would force out the bad actors but it didn’t work out that way – we still saw good money going to back Sam Bankman-Fried [the convicted fraudster who ran the crypto exchange FTX]. That’s a real problem.”
