Bitcoin is not going to solve all of the nation’s financial problems, but unlike the U.S. dollar, it cannot be debased — as is currently happening to the greenback as the gross national debt exceeded $31 trillion for the first time in October.
That, in part, was the message delivered by Jason Wright, a senior partner and global head of marketing at SkyBridge Capital, an alternative asset manager founded and run by Goldman Sachs and Trump administration alumni Anthony Scaramucci.
Wright, speaking at the 2022 ADISA Conference & Trade Show in Las Vegas on Oct. 11, went on to assert that bitcoin, by contrast to the dollar and the world’s other fiat currencies, is fixed at 21 million coins and, thus, cannot be debased. Indeed, he said, bitcoin has emerged as an institutional-grade safe haven asset as a store of value and, as such, is proving superior to gold by a multitude of measures. For example, bitcoin is divisible, fungible, censorship resistant, verifiable, portable, and so on.
The first full trading year for bitcoin was 2010, during which gold was trading at approximately $1,750 per troy ounce. As of Wright’s comments, gold was trading at $1,700 per troy ounce.
“It hasn’t moved in 12 years,” he said, even under recent circumstances (high debt, rising inflation, political unrest, war in Eastern Europe and extreme market volatility) during which gold has traditionally been expected to excel.
Over the same period on an annualized basis, NASDAQ returned 19 percent, the S&P 500 returned 14 percent, bitcoin returned 160 percent, though it has declined substantially this year. Still, today there are about 150 million people globally who have exposure to bitcoin in one form or another, but that number has been doubling every year since 2009, making it the fastest adoption of a new technology in history, according to Wright. It’s also important to take note of who’s adopting bitcoin, he says, pointing to institutional investors appetite for the cryptocurrency.
“Nobody should underestimate how aggressively the institutional herd is now adopting. Last year, by way of example, we saw university endowments like Harvard, Brown, Yale, Emory, all publicly disclose exposure to bitcoin as part of their asset allocation model,” he said. “The conclusion we have reached is many more will follow.”
2022 also saw the sovereign nation, El Salvador, adopt bitcoin as legal tender, and other countries are sure to follow. Why? There are 66 countries around the world that have become “dollarized,” Wright said, meaning their local currency has collapsed and they have switched to the U.S. dollar as their local currency. Alas, the continuing debasement of the dollar bodes poorly for its abiding use as a viable currency.
“You can’t embark upon that kind of money printing without having a profound effect on the purchasing power of the U.S. dollar,” he said, referring to massive deficit spending to ameliorate economic stress during the global financial crisis and COVID-19 pandemic. “As a result, the dollar is being debased, and we are all going to pay a very high price for that in the future,” Wright predicted. “So, we have a very big problem.”
Meanwhile, there is plenty of evidence suggesting the mainstreaming of bitcoin. To wit: BlackRock, the world’s largest asset manager, is launching a product to compete directly with GBTC (Grayscale Bitcoin Trust). Add to that the decision by Fidelity, (which manages 30 percent of U.S. retirement assets), to make bitcoin available in 401(k) plans, and the Bank of New York’s decision to custody bitcoin for institutional clients.
The consistent feedback Wright said he gets from financial advisers is that their clients are intellectually curious and are aggressively inquiring about blockchain technology and bitcoin.
Wright believes that, ultimately, bitcoin will drag money into the internet era — though he stops short of calling it a currency at this stage, but rather a store of value.
He has no qualms, however, about declaring the blockchain the “greatest ledger created in the history of mankind.”
Currently, payment routes are being modernized by blockchain technology in ways that will allow transactions to be consummated in a few seconds rather than two days. The move to blockchain by credit card giants Mastercard and Visa, as reported by Signify Technology, is especially significant because they are among the corporations that originally held skeptical views toward bitcoin and other digital coins.
“There are a variety of ways to get exposure to the space, either buying bitcoin directly or buying products that will give you exposure to the digital asset ecosystem,” Wright commented. “It is a burgeoning new asset class.”
He estimates that within five years bitcoin and crypto assets in general will be the 12th financial sector of the S&P, alongside sectors such as technology, healthcare, real estate and energy.
Over the period of 2015 through 2020, the traditional 60/40 portfolio returned clients on average 7.2 percent. If over the same period an investor had taken a half percent from each their equity and fixed-income sleeves and put a 1 percent total position in bitcoin, that same 7.2 percent return with a 1 percent position in bitcoin would have returned 9.2 percent annualized. If, as some people fear, the 1 percent bitcoin position during that period had gone to zero, the 7.2 percent return would have modestly dipped to 7 percent annualized.
“I can’t speak for you or your practice, but having that kind of asymmetric return in a portfolio makes sense,” Wright said. “What I do believe, at the risk of offending the compliance people in the room, is having no exposure to this space is not the right number today.”
Mike Consol (m.consol@irei.com) is senior editor of Real Assets Adviser. Follow him on Twitter (@mikeconsol) and LinkedIn (linkedIn.com/in/mikeconsol) to read his latest postings.