Publications

- January 1, 2021: Vol. 8, Number 1

Billionaire bitcoin proponents make play for gold 2.0

by Mike Consol

Not only is bitcoin the best-performing asset of the past decade, it will be the best-performing asset of the current decade and is poised to replace gold as the inflation hedge of choice among smart investors.

That’s the forecast from Cameron and Tyler Winklevoss, the so-called Winklevoss twins, who were among the first adopters of cryptocurrency, buying $11 million of crypto in 2013 and later starting their own cryptocurrency exchange named Gemini, a regulated digital currency exchange wallet and custodian that has partnered with the likes of Samsung and State Street, has a banking relationship with J.P. Morgan, and business relationships with Deloitte and Marsh McLennan.

Speaking on the CNBC program Squawk Box, Tyler Winklevoss said, “Our thesis is that bitcoin is gold 2.0, that it will disrupt gold. To do that, it has to have a market cap of $9 trillion, so we think it could price one day at $500,000 per bitcoin. At $18,000, bitcoin is a hold or at least — if you don’t own any — a buy opportunity. We think it’s going to be a 25X from here.”

Bitcoin hit an all-time high on Nov. 30 of $19,918 per bitcoin, sustaining its impressive 2020 rally driven by a surge in demand from retail and institutional investors. The world’s largest cryptocurrency rose in value by more than 170 percent through November 2020. As of today, the cryptocurrency is trading at about $18,900 per bitcoin, recently boosted in part by PayPal’s decision to launch a new service allowing its customers to buy, hold and sell cryptocurrency, effectively enabling cryptocurrency as a funding source for digital commerce at its 26 million participating merchants.

Further boosting bitcoin are inflation fears that have increased demand for safe-haven assets. The Winklevoss twins argue that bitcoin is the only long-term protection against inflation, and smart investors are coming to realize the specter of inflation — the result of unprecedented fiscal and monetary stimulus from central banks around the world — and the need to protect their portfolios against its corrosive effects.

“There’s not much of a debate on all the debt that’s increased in the U.S. and the money printing,” Cameron Winklevoss told Squawk Box. “So, how do you protect against that? A lot of people are starting to realize that bitcoin is really the best defense and offers the opportunity for an asymmetric return of something like 25X to 40X from here. I don’t think there’s an asset in the universe that can credibly offer that kind of potential and protect against inflation. Gold’s the classic hedge. If this was the 1970s we would probably be buying and holding gold, but today we have bitcoin.”

The cryptocurrency’s supply is fixed at 21 million bitcoins. While the value of bitcoin will rise and fall, the supply will not, creating resistance to inflation, unlike traditional cash currencies, which can and have been expanded wholesales to stimulate developed economies around the world. Thus far the practice has not triggered inflation, though many investors and analysts believe significant inflation could be in the offing.

The billionaire brothers point to the likes of investing stars Paul Tudor Jones and Stan Druckenmiller buying bitcoin and extolling its virtues. Jones, the founder and CIO of Tudor Investment Corp., likened his investment in bitcoin to being in the “first innings” of investments in Apple or Google. Add the affirmation of publicly traded companies such as Square and Microstrategy, both of which have sunk tens of millions of dollars into bitcoin, purportedly to protect their valuations. Why? Because at this point “cash is trash,” said Tyler Winklevoss.

Still, federal regulation of cryptocurrencies might be looming. Brian Armstrong, CEO of Coinbase, said he’s been hearing rumors that further regulation is coming from the U.S. Treasury Department, including steps to increase data collection from digital wallets. Those comments sent bitcoin down to $16,000 apiece at the time. What’s more, former Fed chair Janet Yellen, widely expected to become the next Treasury Secretary, said years ago she is “not a fan” of bitcoin and that it’s “not a stable store of value.”

Speaking on Squawk Box, Tyler Winklevoss shot back that in 2013 there were rumors that bitcoin would be outlawed, and yet cryptocurrencies are far past serious contemplation of such actions.

“We believe in healthy, thoughtful regulation, and that’s been the case in the U.S. and many other jurisdictions over the last decade,” he said. “I’m not really worried about the boogeyman of regulation. That was a conversation that we got past like five or eight years ago.”

On the flipside, Gary Gensler, who is reportedly in contention for the Deputy Treasury Secretary post in the Biden administration, is considered a friend of the cryptocurrency, having taught courses on bitcoin on blockchain at MIT.

Though bitcoin is still a spectacularly volatile asset, the Winklevoss twins have proven unperturbed, standing by the cryptocurrency through its 2017 crash and its frequent gyrations since then. In August, the two penned an essay making the case for a $500,000 bitcoin and claiming bitcoin is the only long-term protection against inflation. One of the brothers said, “It’s hard to look at the datapoints and deny that bitcoin is an incredible technology and an incredible store of value.”

Gemini, the Winklevoss twins’ cryptocurrency exchange, is regulated as a New York State–chartered trust company, has more than 300 employees, and is regulated by the New York State Department of Financial Services.

As of now, the Winklevoss twins’ commitment to this new frontier in blockchain-based currency has placed them in the red-hot center of digital asset investing.

 

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

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