You cannot turn your face from mainstream media these days without hearing the word ‘bitcoin’. Even President Trump tweeted about it.
Bitcoin is no longer that awkward dinner table conversation, it is now part of the agenda of the boardroom meetings. With the genesis block about 10 years ago, Pandora’s Box has been opened.
Fidelity, JP Morgan, Blackstone, Goldman Sachs – all are trying to get involved with Bitcoin and Blockchain one way or another.
While there are numerous use cases of Blockchain, according to the WEF, a new rhetoric has surfaced about Bitcoin’s potential to save our Pension fund.
Everyone by now has heard about the shambles that our pension is in.
Bitcoin is deflationary
Did you know about 4 Million bitcoins may have been lost forever? That means, even when every last bitcoin out of 21 Million possible bitcoins have been mined, we may only be able to access around 17 Million of them.
There were around 36 million millionaires in 2017. That number increases each year. It is mathematically impossible to distribute one bitcoin per millionnaire, even when people are willing to spend money.
None of the other financial assets (we are not talking about art work/collectibles/real estate/etc.,) share that kind of deflationary dearness.
That increasing demand pressure makes bitcoin one of a kind asset to hold. If it continues its progress trajectory, then adding it to a pension fund could help mitigate the slump in other asset classes in the fund.
Non-correlated nature as a hedge against recession
Bitcoin does not share the market sentiments or behavior. If market goes north it could go south or it could follow the market pattern and sometimes it does the exact opposite of whatever the market is doing.
This lack of correlation is, according to financial gurus, is a desired attribute in an asset that could be used as a hedge against market risks.
Anthony Pompliano of Morgan Creek Digital Assets makes case for Bitcoin as the non-correlated asset as a hedge against financial turmoil.
The losses endured during the 2008 recession was over 12 Trillion dollars and some estimates suggest that it will not be until 2023 before we can catch up to cover those losses. However, there are talks about another recession on the horizon.
Exact implications of recession on bitcoin are not known since bitcoin never went through a recession in its life, however, a case can be made that its non-correlating nature could work in its favor in the face of a recession.
Best performing asset in the past 10 years
As of May 2019, Bitcoin was the best performing asset in the world in any class for 2019. This was when Bitcoin was trading at $5000. As of this writing, Bitcoin is just about $10,000; An incredible 100% increase since it was named the best performing asset globally. There has not been any other asset that has performed as well as Bitcoin has.
According to Anthony Pompliano “it’s the best performing asset class over the past ten years – it’s outperformed S&P, DOW, NASDAQ, etc. during the longest bull run. It experienced two 85 percent drops during that time, but [it’s] still up over 400 percent in the last two years.”
The growth is expected to continue as more and more financial institutes join the bitcoin revolution.
Off the chart price speculations
Predictions around bitcoin prices are outrageous.
Even most common prediction of one million dollars per bitcoin over the next decade means a 100x growth from its current $10,000 price point. 100x in next decade puts it around 10x per year average growth. That’s 1000% per year over the next ten years.
John McAfee made headlines with his million dollars per bitcoin prediction bet by 2020. While a million dollar bitcoin does not seem to be in the cards for 2020, we can never write off its potential over a 10 year trajectory.
Millennials trust bitcoin more than banks
Millennials make up for more than 35% of the US labor force making them the largest generation in the labor force.
Millennials trust Bitcoin more than banks. This means, the largest labor force demographic is now going to put their money in bitcoin more than banks.
Demand dictates price. This is simple economics. These millennials have at least 20-30 years of working life ahead of them and if they decide to put even a small percentage of their earnings into bitcoin, that itself works out to be a huge demand.
If this demand translates to continuing upward trajectory of bitcoin then it makes sense that pension funds can benefit by diversifying even a fraction of their portfolio into bitcoin.
Bitcoin can help avoid misappropriation of pension funds
What happens when you do not realize that your employer or whoever is handling your pension fund has been cheating you until after you retire? What if it is too late at that point?
It is not just blockchain for bitcoin investments in the pension funds, moving the whole pension records to a blockchain, specifically bitcoin based blockchain, could ensure that funds are not misappropriated and every cent is accounted for.
If the price continues to increase in bitcoin as the adoption grows, then dedicating part of the portfolio to Bitcoin may also help accelerate the growth. Not such a bad thing.
Huge upside potential
Only 2 wallets existed about 10 years ago. Today, we have over 40 million. The crazy part is not that we went from 2 to 40 million, it is the fact that the existing wallets do not even represent the 1% of the 1% of potential user base of Bitcoin that could be touching it directly or indirectly over the coming decade.
If Bitcoin’s price is where it is at 1% of 1% market penetration, what happens when it reaches full 10% of its potential market? Or what happens when it reaches 50%?
There is no other technology or investment vehicle out there with such a huge upside potential.
Morgan Steckler of iTrustCapital, an expert on Retirement arena specializing in Cryptocurrencies says “For a retirement account or pension, even having a small exposure of your overall portfolio can provide you with that “what if” upside, and could lead to something that can truly change and transform your retirement years.”
Safe haven better than gold
Mark Cuban doesn’t like Gold and Bitcoin, however, he dislikes Gold more than Bitcoin. In his own words “And the good news about Bitcoin is there’s a finite supply that’ll ever be created.”
Countries going through inflation have used Bitcoin
This trend has been more common these past few years. Countries where people are experiencing higher inflation are flocking to Bitcoin. Zimbambwe/Venezuela/Argentina/etc. Show the numbers.
While selling at premium in these locations is exciting for Bitcoin fans, the more exciting thing is about the growing demand in countries where fiat is failing its people.
This ‘flocking’ to bitcoin only increases its demand and further making it more dear.
Negatives to consider
These are the 5 things that work against the above hypothesis (to keep this conversation balanced):
- Lot of ambiguity from a legal framework standpoint
- Lot of competitors within crypto space
- Mainstream project, like Facebook Libra, if adopted, could hamper Bitcoin’s trajectory
- Lot of newer generation blockchain protocols are emerging every day
- Beyond this, all investments come with inherent risk and one should understand what they are putting money into and the risk they are comfortable with
This article was written for informational purposes only.
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RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.
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