Well, Bitcoin finally broke above $20,000 per coin this morning, for the first time ever.
It has seemed inevitable ever since the floodgates opened for big-money institutional investors to start pouring in. It all goes back to comments that investors Bill Miller and Stanley Druckenmiller made in early November in support of the rationale for owning Bitcoin (more here). I've mentioned Raoul Pal's remark a number of times ("That has removed every obstacle for any hedge fund or endowment to invest.") Or as Danny Masters of CoinShares put it on Power Lunch, "[It's] fast migrating into a career risk for not having Bitcoin in your portfolio."
Sure enough, the big money has started flowing in. Last week, the big life insurer MassMutual announced it had purchased $100 million of Bitcoin (and bought a small piece of NYDIG, a crypto custodial service). "As MassMutual is considered to be a thought leader in the insurance industry, we would expect other insurers to invest in bitcoin instruments," wrote market strategist Brian Reynolds.
MassMutual is hardly putting much capital at risk; half a percent, roughly, of their $235 billion investment portfolio. But that's exactly the point that Miller and others (like the Winklevoss twins, who claim Bitcoin will soar to $500,000) have been making; if all the big money puts just a sliver of their portfolios into Bitcoin, those are still huge potential inflows over time to support the price given its fixed supply.
J.P. Morgan has put some numbers behind this. Given the estimated $60 trillion (yes, trillion) in funds that insurance companies and pension funds have in the U.S., Europe, U.K., and Japan, a 1% allocation to Bitcoin is $600 billion of inflows. And the current total value of all the Bitcoin outstanding is only around $330 billion. So even if these investors put half a percent of their portfolios into Bitcoin, all else equal that would still double its current market cap.
All of which is to say, the dynamics supporting Bitcoin's breakout have much more to do with this tidal wave of capital potentially pouring into the space, and less to do with currency debasement--although those concerns are certainly part of the attraction. U.K.-based fund manager Ruffer, for instance, just confirmed it's bought nearly $750 million of Bitcoin as a "protective move for portfolios" against "some of the risks we see in a fragile monetary system and distorted financial markets."
On that note, we get the Fed decision at 2 p.m. today. The dollar index is on the verge of breaking below 90, and down nearly 7% this year against other major currencies. We've been talking all year about whether a significant leg lower for the dollar is coming, given the huge fiscal deficit we're running, the expansion of the Fed's balance sheet, and the drying up of Chinese demand for Treasuries (a key reason why Druckenmiller is bearish on the greenback).
Money Report
While the Fed isn't expecting to announce any major changes today, sticking with the status quo--buying $120 billion a month of Treasuries and mortgage products--even as markets have soared, the economy has rebounded, and the vaccine is now being administered is likely to weigh on the dollar in coming months.
But if you think our efforts are extreme, over in Europe the central bank is expected to buy all of the new government bonds issued by euro zone countries this year, per Citi. "Investors will not have to contribute a single euro to finance the vast budget deficits of eurozone governments next year," based on Citi's projections, said the FT. Same for taxpayers, presumably. What's not to love?
Our Fed, according to Druckenmiller, has been buying a little over half of new U.S. debt supply in 2020. Dave Zervos may well be right that policy makers will be able to gradually and successfully "taper" these pandemic efforts and hand off to the private sector for a more self-sustaining recovery in the years ahead. But you can see why Bitcoin will remain the go-to play in the meantime for skeptics.
See you at 1 p.m!
Kelly
