Crypto: Are We All Nuts or Onto Something?

With bitcoin’s capped supply at 21 million as well as Ethereum’s EIP-1559 expected to go live next month, which will evolve Ethereum as a deflationary asset, I believe the writing is on the wall when it comes to what will hold value over the coming decade.

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key takeaways

  • We’re still in the very early innings of cryptocurrency adoption, and traditional allocators and investors are not ignoring this asset class anymore
  • Holding bitcoin on the balance sheet will be no different from holding euros or Mexican pesos

It’s been a fascinating month between the market getting chopped in half from all the FUD news coming out at the same time as a lot of bullish news. I’ve never seen any asset class where people are as enthused and bullish as they are after the market pulls back 50%.

Are we all nuts or are we all onto something?

Check out this list of just some of the most recent bullish news that came out last week:

  • El Salvador officially declared bitcoin legal tender and plans to offer facilities to mine bitcoin with 100% renewable energy.
  • France, Switzerland and The Bank of International Settlements are launching a trial on how banks can handle Central Bank Digital Currencies  across borders.
  • India is moving to classifying bitcoin as an asset class.
  • The World Economic Forum issued a toolkit on how policy makers should treat decentralized finance (DeFi).
  • MicroStrategy’s junk bond offering was oversubscribed, and the firm offered up to $1 billion of securities to potentially buy more bitcoin.
  • Interactive Brokers plans to offer digital asset trading by the end of the summer.
  • Victory Capital, with $157 billion in AUM, announced plans to enter the cryptocurrency market.
  • Carl Icahn is looking to get involved in the cryptocurrency space in a ‘relatively big way.’
  • The Biden administration is proposing a $6 trillion budget for the 2022 fiscal year beginning October 1. It’s set to be financed through deficit financing and raising taxes.

That was a long list and I’m out of breath just from typing it, however there is so much fear in the market that all these great bullish headlines seem to be ignored.

El Salvador: bitcoin’s savior?

Let’s start with the El Salvador news. Despite the country’s nominal GDP of only $25 billion, it has bigger global implications. Some of the emerging countries that have been decimated by inflation have already been using US dollars or cryptocurrencies in the black market as a counterbalance to their official, inflated currencies.

However, with 25% of all M2 money supply having been printed this past year alone, it’s inevitable the US dollar will devalue, and we are already seeing inflation showing up in consumer prices. As bitcoin becomes legal tender in one country with more to follow in Latin America, the digital currency will have to be recognized as money under the US commercial law, which means banks will have to treat bitcoin like any other foreign currency.

As a result, the demand for bitcoin or other virtual currency in emerging markets could increase in addition to corporate treasurers potentially buying bitcoin without facing as much backlash. Holding bitcoin on the balance sheet will be no different from holding euros or Mexican pesos.

Digital assets are here to stay

With the Bank of International Settlements and World Economic Forum issuing guidance on how to handle CBDCs, it seems as though the global elites don’t expect cryptocurrencies to go away. They wouldn’t issue guidelines if they thought digital assets were just a fad.

Separately, India looking at classifying bitcoin as an asset class seems to squash some of the FUD that’s been coming out of India as of late. Plus the news about MicroStrategy, Interactive Brokers and Carl Icahn are all bullish because they show that more money is flowing into this new asset class.

They also show how we’re still in the very early innings of cryptocurrency adoption, and traditional allocators and investors are not ignoring this asset class anymore. 

On the macro side, the S&P 500 hit an all-time high at the same time the Federal Reserve’s balance sheet hit an all-time high of over $8 trillion. Also, the Biden administration is proposing a $6 trillion budget for the next fiscal year as well as an $1 trillion infrastructure bill, which came down from the $7 trillion initially proposed. 

This is an unprecedented amount of money printing and a lot of money being sloshed around in the market. We’re seeing a record amount of SPAC deals in 2021 as well as all the private companies raising capital at eye-watering valuations with no problem.

With bitcoin’s capped supply at 21 million as well as Ethereum’s EIP-1559 expected to go live next month, which will evolve Ethereum as a deflationary asset, I believe the writing is on the wall when it comes to what will hold value over the coming decade. And it definitely isn’t fiat.

I’ll leave you with a final click-bait headline-maker: ‘The Fed owns Bitcoin on Its Balance Sheet.’ The Fed is the fourth-biggest owner of the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and that ETF holds MicroStrategy’s newly issued junk bond so technically, the Fed holds bitcoin on its balance sheet.

What an interesting time to be alive, don’t you think?

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