The Bitcoin as Gold Narrative is Going Mainstream
The Bitcoin as Gold Narrative is Going Mainstream
We're seeing major institutions sign on to Bitcoin and The Data Agrees
The best time to buy Bitcoin was yesterday and the second best time is today.
Join our upcoming webinar "Risk-Managed Investing for the Coming Bitcoin Growth Cycle" on the December 15th, 11-12am ET to learn why investors are choosing Bitcoin over gold and corporations are creating crypto treasuries.
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The Bitcoin as digital gold narrative has entered the mainstream. November saw a slew of institutional leaders give credence to the permanence of Bitcoin as a new global hedge against fiat currencies and inflation including the CIO of BlackRock, Stanley Druckenmiller, SkyBridge Capital, and Guggenheim Partners.
Amidst this, we have seen the price of Gold dive relative to Bitcoin with historic outflows of Gold seemingly moving towards Bitcoin. JP Morgan reports that family offices and millennials are increasingly turning to Bitcoin over Gold as a hedge against inflation. AllianceBernstein, not traditionally a bleeding edge institution, also reports clients placing significant components of their portfolios into Bitcoin.
-Value of Gold Compared to Bitcoin Over Past 5 Years-
These institutional endorsements have two primary effects.
First, their commentary enters the news cycle and generate a sense of urgency for other investors to get into the action. This further raises the price of Bitcoin which leads to more coverage and more cyclical price growth. We are just at the beginning of this hype cycle with google search trends starting to move upwards, but nowhere close to the interest generated in the last bull run in 2017.
-Google Searches for Bitcoin Over Past 5 Years-
The fact that Bitcoin price is at historic, all-time highs with much less buzz than the last cycle indicates we are likely nowhere near the peak. This is an institutional-led, bull run. Second, these endorsements give cover for other funds, institutions, and wealth advisors to invest funds into bitcoin or bitcoin related businesses. More than anything, money managers want to avoid looking stupid. With mainstream leaders coming out in support of Bitcoin, other managers can point to them as indicators of credibility. In the event of a price crash, these managers can also at least say they weren’t the only ones who followed the trend. This obviously bodes well for the future prospects of Bitcoin. As a rising tide lifts all ships, the growth in Bitcoin interest will also trickle down to other leading digital assets.
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A Rising Tide
As Ethereum launches the “beacon chain” of its 2.0 release, hundreds of millions of Ethereum has now been locked up for the next two years or more. This diminishment of supply, the buzz around the successful start of deploying a significantly more scalable Ethereum platform, and profit-taking from Bitcoin have led to a similar rise in Ethereum price.
While Bitcoin flirts with its all time-high, Ethereum remains far from it’s all time high and its relative market cap to Bitcoin remains much lower than the last bull run, indicating Ethereum likely has even more space to grow. As Ethereum lacks the market cap and simple narrative of Bitcoin, this asset looks to move more from retail buying activity and blockchain veterans rather than institutions. This allows for more speculation and also tends to move more on weekends when small buyers aren’t at work and have more time to play around.
-Value of Ethereum Compared to Bitcoin Over Past 5 Years-
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Corporates Incoming
Alongside institutions investing in Bitcoin, we see a rise in corporations beginning to understand Bitcoin as a balance sheet hedge, including MicroStrategy and Square. Two Prime’s own Dr. Marc Fleury wrote on this topic for Cointelegraph this past week. These early adopter announcements serve the practical role of better treasury management, especially for multinationals looking to avoid local currency risk and also have the added benefit of generating extra buzz and price action on Bitcoin itself. Expect to see many more corporations begin to publicly enter the fray.
Summary
In short, technical and fundamental indicators point to a bullish few quarters ahead. The price of Bitcoin continues to remain eerily aligned with the stock to flow model, which predicts six-figure prices in the next 12-18 months. Amidst this exuberance, its important to remain level-headed. Options and derivative overlays offer one methodology for managing risk in various market conditions and continues to be one of the leading tools we use at Two Prime to remain well-positioned amidst volatility.
-Bitcoin Stock To Flow Model Through November-
To learn more about S2F model and the rise of derivative markets, sign up for our upcoming webinar about the Risk-Managed Investing for the Coming Bitcoin Growth Cycle that will take place on December 15th, 11-12am ET.
Please be in touch directly if you would like to discuss the market in greater depth at alexander.blum@twoprime.fund.
