Cathie Wood on bitcoin “I think there is this insurance policy that some individuals and businesses will take out, in fact, I think some of these emerging market central banks will start accumulating bitcoin and other currencies. As they find that their currencies are under attack, and their reserves go down, maybe the will have a balance with bitcoin and other crypto assets.” Cathie would also state that bitcoin could go to $500,000 over the next decade.
But before we move on, it is important to understand why people even pay attention to Cathie Wood. She is a fund manager that has several exchange traded funds that focus on innovation, growth, and momentum oriented companies. Her exchange traded funds will have holdings that range from Coinbase to Tesla. In fact of one of her largest calls is that the Tesla stock price is going to $7,000 over the next five years. She’s well respected for her strong calls on Tesla and other assets that have provided outsized returns over the past few years. These gutsy calls continue to make a difference for ARK ETF investors but may see declines if the Fed starts to taper.
Now, here’s why that central bank statement is a big deal to for bitcoiners, gold bugs, those who appreciate silver, and other individuals who appreciate hard money.
G20 Countries Are Far From Fiscally Healthy
At least nine or ten countries within the G20 have debt to GDP ratios at over 80% or with Japan leading the way at over 200% debt to GDP. That is to say that these countries have high levels of debt in relation to their gross domestic output. It lets individuals know more about solvent a country is by finding out how much it products and how it owes to debt holders. The higher the debt to production ratio, the lower the chances of the country paying back its debts. Or, at least, the duration of years that it will take to pay back debt if GDP was focused on debt mitigation. The United States comes in at 108%. While other nations like Italy, Singapore, France, and others hold the honor of having higher debt to GDP ratios.
In such a situation and in a world where an increasing portion of debt is denominated in dollars, one seeks to ensure that the dollar stays relatively weak against other currencies. If the dollar were to rise and gain in strength in relation to other currencies, the debt loads of other countries would be too unbearable, that is to to say, even paying the interest would be a significant financial burden.
But that’s another story and concept altogether. The more immediate problem is how can a country grow if its focused on debt payments. The next crucial component to think about how that affects employment and quality of life in these countries. For instance, the unemployment rate in Italy is approaching around 12% in 2021. Conversely, in Japan, unemployment is low but the quality of life in upward mobility, may not be as high. Japan’s Nikkei 225 has has barely budged since its prior peak in the early 1991.
That is just Japan, others, such as Spain and other countries have other issues such as bail ins, their own retirement problems, and other factors to deal with. In such a world, a significant portion of European debt is yielding zero or negative rates, so where’s the yield?
With all of these issues, the question is how long will people have faith in their traditional financial institutions? At what point does the system, break in a sense, and default on its promises? That is one of the main reasons why bitcoin came along. The trust in the present financial system is dying and so bitcoin is supposed to serve as the people’s currency, a better, more solid and sound money.
People Laugh (ed) at Bitcoin But Now Worry About Negative Yielding Bonds and Pension Crises
Due to the disruption in the present financial system, with cash in the bank yielding nothing, bonds being quite risky with minimal to negative yield, and then stocks at very high valuations, individuals have had to look elsewhere for growth with a different monetary policy. Bitcoin serves as this alternative store of value and digital gold that continues to appreciate at significant level. Indeed, purchasing in 2012 or even 2014 and holding on to it would have created significant wealth increases, enabling one to quit their job.
The digital gold asset has had wide fluctuations, but it continues to march up in value, helping millionaires like the Winklevoss twins become billionaires. But it has also helped individuals in Argentina, Venezuela, and other countries to preserve their wealth in a place where they are experiencing rampant inflation or deterioration in the value of their currencies.
The point here is how can bitcoin, a new inflating asset with sound monetary policy principles, equivalent or better to gold be a joke in a world full of government issued currencies that are seen as Chuck E. Cheese tokens?
Firms are Buying Bitcoin and Placing it On Their Respective Balance Sheet
Firms are slowly showing that they are looking at buying into this narrative of the “melting dollar” where it continues to lose value in purchasing power due to government printing. As such, they are buying bitcoin and placing it on their balance sheets. They may only have 5% of cash in bitcoin. Still, that is forward momentum, from no corporate position in bitcoin to 1% – 5% of cash in bitcoin.
These companies include the pioneer, Microstrategy, then Tesla, and even Square, a high flying fintech firm. There are others, such as a few Chinese firms that have noted bitcoin on their balance sheets as well. A recent stat shows that at least 40 firms own bitcoin their balance sheets.
Ray Dalio, Paul Tudor Jones and Carl Icahn Has Noted Their Interest in Bitcoin
Ray Dalio, the founder of Bridgewater, the world’s largest hedge fund has added bitcoin to his portfolio. Paul Tudor Jones, a legendary trader added bitcoin citing inflation and other concerns. Finally, Carl Icahn, another large money manager has added his interest in renewable and digital assets.
Bitcoin Mining Is Sustainable
One fear was that bitcoin mining isn’t sustainable. But according to Cathie Wood and others, it can certainly be sustainable as a good portion of mining utilizes hydroelectric processes and other sustainable elements to run its operations. It helps with ESG concerns. Further, ARK and Square have a whitepaper that notes that bitcoin mining can help spur further investment in renewable energy solutions. The idea is that when energy goes into storage it can then also spill over into bitcoin mining. Firms such as Talen Energy have already noted similar initiatives.
Does bitcoin, this rules based asset, also help to incentivize the push toward nuclear energy? Quite potentially, as humanity will require more robust power sources to push economic growth forward.
This is important to mention as ESG concerns could have been a reason not to hold bitcoin on the balance sheet. But it looks like that is not a valid claim.
Central Banks Holding Bitcoin on Their Balance Sheet
Now, will will central banks hold bitcoin on their balance sheet and why would they? The reason why they would hold bitcoin on their balance sheet in addition to gold is because it serves as another way to add reserves.
These reserves, at the end of the day, is what helps to create confidence in their respective government oriented currencies. Why would they add bitcoin in particular?
It would only make sense to add bitcoin as more prominent firms add it. Then smaller central banks add it. Finally, it already serves as a global asset, anyone, anywhere can receive and send bitcoin with a simple wallet. The infrastructure is already built out to a large extent.
What is the probability of central banks holding bitcoin? It would hinge on further adoption by the average individual, more firms, and institutional holders.