The Episode That Turned Tracy Into A Bitcoin Bull

enNovember 19, 2020

Odd Lots

Podcast Summary

Bitcoin's cyclical nature and resilience: Despite volatility and challenges, Bitcoin continues to recover and reach new highs, showcasing its potential as an asset class in a young, cyclical industry.
Bitcoin, as a cryptocurrency, has shown remarkable resilience and continues to bounce back despite facing numerous challenges and setbacks throughout its existence. As a veteran in the industry, Meltem Demers from CoinShares explained that Bitcoin behaves in a cyclical manner, with shorter cycles and a larger secular trend. Bitcoin's ability to recover from dips and reach new highs each time shows its potential as an asset class. The industry itself is still relatively young, with Bitcoin only turning 12 years old this year. Despite its volatile nature, Bitcoin continues to attract attention and investment, making it a topic worth keeping an eye on. For real estate investors looking to navigate the complex world of investing, Principal Asset Management offers a 360-degree perspective, combining local insights and global expertise across various asset classes. For more information, visit principalam.com. Investing involves risk, including possible loss of principal.
Bitcoin as a Portfolio Diversifier in Current Economic Climate: In the current economic climate, investors and corporate treasurers are looking to Bitcoin as a potential diversification strategy due to its decreasing correlation with traditional assets and the macroeconomic environment.
In the current economic climate of low interest rates and high inflation, corporate treasurers and investors are seeking alternative ways to diversify their portfolios and earn yield. Bitcoin, once seen as a risky and volatile asset, is now being considered as a potential diversification strategy due to its decreasing correlation with traditional assets and the macroeconomic environment. The speaker, who has a background in corporate treasury and now works at CoinShares, a financial services firm specializing in Bitcoin, has observed this trend and conducted research on Bitcoin as a portfolio diversifier. The speaker also noted that while the narrative of Bitcoin as a diversifier is growing, it is not yet the prevailing mindset. Gold has also seen an increase in allocation as a diversifier, but Bitcoin's correlation to macro markets and its ability to operate in a larger political and social environment have shifted the way investors approach portfolio construction.
Institutions exploring Bitcoin beyond spot buying: Institutions are considering various ways to gain exposure to Bitcoin beyond spot buying, including arbitrage opportunities, structured products, funds, and the emerging credit market.
While a small number of firms and institutions have adopted Bitcoin, many are still hesitant due to reputational risks. So far, most corporate treasuries have opted for spot buying and custodizing Bitcoin with specialized custodians. However, there are other ways to gain exposure to Bitcoin, such as through arbitrage opportunities, structured products, and funds. The emergence of a credit market around crypto assets is also worth exploring. It's important to note that the perception of Bitcoin has evolved over time, from a decentralized currency to a potential tool for intermediation and yield generation. As the crypto space continues to evolve, it will be interesting to see how institutions adapt and what new opportunities emerge.
Bitcoin's role and value evolve with the economy: Bitcoin's significance changes with the world, acting as a financial asset and method of payment, but its market cap and liquidity need to grow for larger allocations.
Bitcoin's role and value in the world are constantly evolving, influenced by the broader economic climate and market conditions. As the speaker points out, Bitcoin doesn't exist in a vacuum, and its behavior and significance change as the world around it does. This evolution has led to new questions and challenges, such as whether Bitcoin can function as both a financial asset and a method of payment, and how its size and market cap fit into the larger economic landscape. Despite its impressive community, culture, and potential, Bitcoin remains a relatively small player in the world of assets, and its market cap and liquidity need to grow before it can be a serious contender for larger allocations. Ultimately, the speaker believes that Bitcoin's narrative and function will continue to evolve until it reaches a point of maturity, likely over the next several years.
Bitcoin as a Savings Technology and Digital Gold: Bitcoin is increasingly seen as a store of value and hedge against inflation or economic instability, rather than a currency for everyday transactions. Its volatility, driven by the derivatives market, is both a risk and reward for investors.
Bitcoin is increasingly seen as a savings technology or digital gold rather than a currency for everyday transactions. Most investors view Bitcoin as a store of value and a hedge against inflation or economic instability, rather than using it to buy coffee or other goods. The volatility of Bitcoin's price during market crises, such as the one in March 2020, is driven in part by the derivatives market, which can exacerbate price swings in the spot market. The unique structure of the Bitcoin market, with its large and growing derivatives market, can make it more susceptible to price swings based on market sentiment and fear. However, this volatility is also a part of Bitcoin's appeal for some investors, who see it as a high-risk, high-reward investment. Overall, the perception of Bitcoin as a savings technology and its unique market structure continue to shape its role in the financial system.
Bitcoin as an inflation hedge during economic contractions: Investors view Bitcoin as a deflationary asset and effective portfolio diversifier in the current market environment due to its limited supply and potential to transform stranded alternative energy into monetary value.
The expectation of Bitcoin behaving as an inflation hedge during economic contractions and money printing has led to significant buying interest. However, the recent market sell-off served as a reminder that the market cycle and narrative may take longer than anticipated to play out. Although inflation has not yet set in, many investors, including institutional players, view Bitcoin as an effective portfolio diversifier and hedge in the current market environment due to its deflationary nature and limited supply. The belief that Bitcoin is a deflationary asset, combined with its potential to transform stranded alternative energy into monetary value, makes it an attractive investment opportunity for regions with cheap access to alternative energy. Despite the uncertainty surrounding inflation and the economy, the narrative around Bitcoin's role as an effective hedge in an inflationary period continues to develop.
Institutional Adoption of Bitcoin is a Slow Process: Despite growing mainstream conversation, institutional investment in Bitcoin is moving slowly due to risk-averse incentives and the maturity of the market
The institutional adoption of Bitcoin and other cryptocurrencies is a slow process and is still in its early stages. Matt Levine and Katie Greifeld, hosts of the new Money Stuff podcast, believe that while the conversation around Bitcoin is becoming more mainstream, the actual allocation of capital to these assets by institutions is moving at a much slower pace. The incentive structure for institutional asset managers is geared towards preserving capital rather than taking high risks, and the Bitcoin market is still immature with limited options and a small number of companies able to cater to institutional investors. However, the clientele of large asset managers is starting to change, and crypto could provide an avenue for growth in higher margin products and services. But the form that takes is likely to be different from Bitcoin in its pure form, possibly in the form of Bitcoin depository receipts or other derivatives.
Ethereum's Rise: The Impact of Decentralized Finance: Ethereum's outperformance in 2021 is due to DeFi's growth, offering investment contracts & generating interest. Ethereum's programmable assets distinguish it from Bitcoin's focus on payments technology.
Ethereum's outperformance in the cryptocurrency market this year can be attributed to the rise of decentralized finance (DeFi) on its platform. DeFi uses Ethereum's smart contract feature to create blockchain-based investment contracts and generate interest, leading to increased velocity and consumptive demand for Ether. Ethereum's ecosystem of programmable financial assets sets it apart from Bitcoin, which primarily focuses on payments technology like Lightning. Although Ethereum's interest is growing rapidly, Bitcoin still dominates the institutional market due to its longer history, more robust data, and greater market infrastructure, such as higher options volumes. Despite the lack of a US Bitcoin ETF and the ease of purchasing Bitcoin on various platforms, some believe it will still play a significant role in the institutional market.
Bitcoin ETFs in Retirement Accounts: Bitcoin ETFs are gaining popularity globally, and their availability in retirement accounts is attractive to investors. US investors are eagerly awaiting the approval of a Bitcoin ETF for easy, tax-advantaged access.
ETFs, particularly Bitcoin ETFs, are increasingly popular in the asset management market, and their availability in retirement accounts is particularly attractive to investors. While the US SEC has yet to approve a Bitcoin ETF, other jurisdictions such as Germany, Switzerland, Canada, and Japan have already launched Bitcoin ETFs and structured products. This trend is expected to continue, and it may only be a matter of time before a successful Bitcoin ETF is cross-listed in the US. The ability to easily buy Bitcoin in a trusted and tax-advantaged way through existing brokerage accounts is seen as an important channel for US investors. Despite the volatility and uncertainty surrounding Bitcoin, its use cases continue to evolve, and the asset class remains a topic of interest and debate. Meltem Demirors, a digital asset executive, expressed her bullishness on Bitcoin, not because of its price potential, but because of the market's ability to generate narratives and the enduring appeal of the asset class to people.
Bitcoin's Survival and Significance Despite Critics: Bitcoin's community belief and historic significance keep it alive, making it a promising investment and significant player in finance.
Despite the numerous attempts to write Bitcoin's obituary, the decentralized digital currency continues to survive and thrive due to the strong belief and commitment of its community. Meltem Demirors, a digital asset executive, made a compelling argument on the Odd Thoughts podcast that even if Bitcoin were to face challenges, people will always find new reasons to justify its existence and value. She also highlighted Bitcoin's historic significance as a modern financial asset that allows individuals to project their dreams of ideal economies and financial systems onto it. With a large and growing community, Bitcoin's potential for innovation and adaptation is vast, making it a promising investment and a significant player in the financial world.

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