By Jeremy Schwartz, CFA, Global Head of Research
Last week’s Behind the Markets podcast featured a debate on the merits of Bitcoin with Alex Pickard, VP of Research at Research Affiliates, and Jason Guthrie, Head of Capital Markets and Digital Assets for WisdomTree Europe.
Pickard said he first got into Bitcoin during his financial engineering graduate coursework at UCLA in 2013, but he really gained conviction to go long in 2015 at around the $500 price level. He turned a windfall profit into a startup enterprise to mine Bitcoin further.
- The use case and narrative have shifted. Pickard was attracted to the possibility of using Bitcoin for transactions, and the democratization of the financial system. He is frustrated by the large transaction fees on the network and ultimately expects the blockchain technology that will dominate payment transactions as the one that can handle the most capacity at the lowest possible price.
- The possibility that Tether is a factor driving Bitcoin prices. Tether is a stablecoin that helps facilitate digital transactions. There are many questions, however, over whether Tether has fiat currency assets to back up the coins in circulation, and there is no transparency about its assets. While lawsuits in New York around Tether’s activities were just settled, there is a correlation between Tether activity and Bitcoin prices that lead to questions about the drivers in Pickard’s mind. If Tether were to collapse, and this is pure speculation, that could negatively cascade throughout the crypto space.
- Pickard questions the “store of value” narrative (traditionally associated with fiat currencies) for an asset that is as volatile as Bitcoin. Pickard wonders how Bitcoin can be a store of value with the size and severity of drawdowns it has experienced.
- Pickard referred to himself as a ‘big-blocker’ and prefers Bitcoin SV, which is a forked version of Bitcoin that allows for much larger transactions blocks and fosters cheaper transaction fees. Bitcoin SV has not captured the hearts and souls of the crypto community, but is one that Pickard likes over the longer run.
Guthrie is more optimistic about Bitcoin and feels we are still relatively early in the adoption cycle. Guthrie’s narrative centered on:
- Many are worried about all the money printing around the world leading to a drop in the value of fiat currencies. The fixed nature of Bitcoin supply means it cannot be devalued in the same way fiat currencies can, which is a rationale similarly applied to gold. Bitcoin being the new generation’s gold has a lot of appeal as an investment story.
- Guthrie believes there is merit to Bitcoin being a store of value. They cannot be easily counterfeited, nor can new ones be created easily, and they must be easily transferrable and durable. The next step is getting…