The institutional future of Bitcoin is evolving with each passing day. The adoption of this asset class has increased in the last decade and is anticipated to increase further in the coming years. This interview talks about the purpose of cryptos, why invest in them more than gold, and how far has the institutional involvement in crypto changed over time.
The violent price swings of Bitcoins (BTC) could change into a thing of the past as institutional purchasers with stronger hands prevail to push the asset higher, as per a prominent crypto whale. This article will talk about the institutional future of Bitcoin from the views of One River Asset Management founder and CEO, Eric Peters.
How Far Has The Institutional Future Of Bitcoin Changed?
Here is a complete interview of Eric Peters, the founder, and CEO of One River Asset Management who takes us through the various realms of the institutional future of Bitcoin and also the potential future of cryptocurrency. So if you are a crypto fanatic and want to know about the institutional future of Bitcoin and also the future of bitcoin: 3 predictions from experts then keep reading.
Eric Peters is the CEO and founder of One River asset management and also One River Digital Asset Management and Eric made headlines quite a few times as the Bitcoin whale who surfaced billion dollars on crypto holding and the backing of Brevan Howard’s Alan Howard and that as we all know is one sure way to make us splash. A billion dollars was when Bitcoin was priced slightly lower, how much do you hold in crypto assets now?
I would say that we made headlines but yeah we are well in excess of a billion dollars at this point.
Now you have written a manifesto about the case for digital assets and that is where I would like to begin because since you emerged as the whale, Bitcoin has more than doubled to $40,000 and it has since pulled back about 25% to $31,000 as of the time the interview was taken. The volatility is fine I suppose, if you are a retail investor, what is the case for institutional investors to own digital assets now?
All right, it is a good question, and look our starting place is to think about where the right place to invest as is opposed to what is the right place for institutional investors and I think you know when an institution is looking at its portfolio there is an issue of you know what is the appropriate size, but let us start with just the investment case, I think that you know we are in a unique period right now. It is a very late cycle period that we have seen many times throughout history and it is a period where governments become extremely indebted, monetary policy becomes less effective, and ultimately governments in order to spur real demand in the economy need to issue lots of debt and begin actually spending. And typically when they do that they try to unburden themselves from the debt they are incurring by debasing the currency that they are issuing that debt in and so it is a very rational response to an economy that is a late cycle and heavily indebted. The issue there is that ultimately those who hold that currency lose their spending power and it becomes a difficult challenge to figure out how to at least hold on to that spending power and there aren’t many assets in a world like we are in today where things are so rich in terms of their pricing.
Digital assets are really interesting in the sense that it is a new asset class altogether and I think they have some unique qualities part of which resemble the qualities that you would find in gold except that they are I think widely underpriced relative to gold and then they have another set of properties which are properties that are technology properties. So Bitcoin for instance and this applies to other digital assets as well, but it is a technology platform and it will look different tomorrow and next year and in the decade to come relative to how it looks right now.
That makes it unique to gold because the kind of gold looked the same two thousand two billion years ago and it will look the same two thousand two billion years from now. The question is what are these technology platforms, this new nature of money. What will that look like in you know two months and two years and twenty years and I think you have to be a real pessimist to think that an emerging technology platform does not become more interesting, more useful, more valuable. So, the entire asset class has these unique properties that it helps and allows you to gain access to the possibilities that these new technology platforms hold, while also helping mitigate this risk of monetary debasement. That is a function of some kind of poor decision, poor policy decisions that we have made in the past and so it is very rare that you find an asset that can kind of allow you to capitalize on the future upside while also mitigating the downside like that. So that is I mean we could spend a lot more time on it. I would encourage anyone to read, you call it a manifesto, it’s paper because I think it dives deeper into it, but at the core that is really the argument.
Would you say Eric at the moment that your interest in or faith in digital assets has more to do with the first leg of the thesis which I would call the macro leg of the thesis or more to do with the second leg of the thesis which is more about you know the promise of technological innovation?
It really is a combination, but look I have been a macro investor my entire career. I always start with a macro. I am not at my core a technology investor. I have just watched the advance of technology over the course of my career. I have marveled at it. I think it continually astounds us in terms of where it leads us and so I actually saw a whole range of the emerging second layer of applications that will be built upon this technology platform and they are super promising. I have seen enough to know that in essence, tomorrow is going to look better than today. And I think when you are investing that is incredibly important. Just does tomorrow look better and worse of the same and I think I have seen enough to just understand that tomorrow looks better than today in these assets. But my starting point is really macro and we have been anticipating this late cycle activity where we advance fiscal policy. We really expanded it. I think this pandemic has created an expansion that is in excess of what we or almost anyone would have imagined possible. The fact that it is conjoined with monetary policy at this point in the sense that we are issuing enormous amounts of debt. We are having our central bank buy them. You know that is the dynamic that we have been anticipating. It is the scale of it is just so profound, that is really ours I mean. That is the driver.
So the question is in that environment what are the assets that you can own. You can try to own equities and a lot of people do those that have not done well typically in inflationary periods. Look back at the 1970s and you will see that. You can own gold, as a lot of people own it. Also, you can own digital assets and I think if you believe the things that we have seen and believe then you look at them and you go these are dramatically undervalued relative to some of these other stories of value and so that is what makes us excited about these. It is just an undervalued asset for that matter for that macro backdrop.
I don’t need to tell you Eric that crypto skeptics are everywhere. There are many to choose from but I am going to go with Jeremy Grantham, the legendary value investor as you know. He is not a macro guy, but he raises a couple of pertinent questions.
How can you value anything that generates no cash flow?
If Bitcoin is 100% faith, equality by the way that you would acknowledge in the manifest. In a bear market when the investors retreat to proven safety and faith is at the minimum, Grantham asks who will want to own something whose entire reason for existence is faith and nothing but faith?
How would you respond to these two questions
It is a fair question. Look here is the thing. You do not get to buy a cheap asset unless there are all kinds of reasons to be skeptical. It is just a reality. So you know we could spend half an hour going through you know we could probably spend three hours going through the case not to be skeptical but be concerned about owning anything that does not yield the cash flow. At the same time, there is no cash flow associated with gold. Gold is worth an awful amount of money as are a whole bunch of varied equities that yield no cash flow or negative cash flow. And so I think in many respects, my goal is not to just try to persuade people that this is a wonderful asset to own. I think we have done the analysis ourselves. I think in a world where there is an abundance of all things we have a unique asset here in Bitcoin which has limited supply and it is unlike any asset that I have seen in the world in the sense that there is no supply response to the price. If Bitcoin went up five times in value or 10 times or 100 times, there wouldn’t be more Bitcoin produced. You cannot say that about really any other asset in the world.
Now does that mean that it has to go up? It doesn’t. But if we have collective faith that this is a store of wealth for people globally and it is a whole new type of store of wealth in the sense that it relies on people throughout the world having a collective faith in its value then it can become incredibly valuable. And right now what I would say is if it were just to go up to the market cap of all the gold in the world, it would go up to something in the order of $500,000 per Bitcoin. Right now it is trading at letting us say it is trading at thirty thousand dollars (at the time of writing this the value of Bitcoin is 29,816.10 USD).
If you look at it from a trader’s perspective, there is enormous convexity to the upside. I think it will be worth more than gold at some point because gold is not infinite. Gold continues to increase in terms of supply and Bitcoin supply with go down over time and in the history of the world there will only ever be 21 million Bitcoins.
So, there are all kinds of fair criticisms, and he makes a fair one, from what I have seen there is enormous faith that is being built up globally in ways that I haven’t witnessed in my career.
Were Bitcoin to be worth more than gold as you point out it would have to go up 20x or almost 20x from where it is today. How long does it take for that trajectory to play out? Are we talking about a five year timeline, or a 10 year timeline, what is your best guess at the very least?
So, the answer is obviously no one knows that and I think it is policy dependent. So I have been in this business long enough to know that you need to think in terms of probabilities, you need to try to imagine the various potential futures. I would say that the probability of the US reversing its policy of trying to debase the currency that it is issuing dead in the probability of that is virtually zero. So, in order to imagine that you would have to imagine an enormous economic boom that allowed the FED to step away from buying treasuries and allowed the treasury to stop issuing lots of debt.
I think that is highly unlikely. More likely we could see some type of next recession, that is followed by even more issuance and more buying from the FED. Now I think that the politicians and the policymakers think that they can proceed with this large issuance and monetization of debt and debasement in a very gradual way. And if they do that I think that the value of anything that protects against inflation will go up at a relatively measured pace. I would say that if they are wrong that they can do this at a measured pace and markets become disjointed and people begin to lose faith at a kind of faster pace than they would want them to then these assets are extremely convex. It can happen in a relatively short time, could happen in a number of years, or in a matter of a few years. But I think one of the things about these assets is you have the option to the upside, it doesn’t cost you anything to hold them. You have price risk to the downside, but you don’t have negative carry.
Will digital assets appeal to institutional investors if they continue to exist in what I would call a parallel track to fiat money or do institutional investors need to see some kind of government or central bank acceptance or endorsement, as Mike Novogratz would say for the Cavalry to really come in?
Well, I would say that you have borderline ruined my life after having broken that story because the number of institutions that have been filling my day with calls and inquiries about this is astounding. If I had to guess, I would tell you that this asset class will become mature in a decade from now. That is just a guess because I think what is happening is almost every bog, a credible institution in the United States is having discussions about this and many of them are calling us and asking. And typically, if someone is calling us about our volatility products or macro products we will have three people on line. We have huge institutions where you have 10 to 15 people, the entire investment community. They are fascinated by this they should by the way because this is the first and last asset class that will appear in our lifetime and so if you are a large institutional investor, the first natural place to get exposure is the bait of these assets and I think as we One River is a fiduciary, our goal is to provide safe and secure kind of peace of mind around how institutions get access to the bait of these assets. The bait of these assets is just the beginning. There are going to be all kinds of opportunities in this asset class and so it is very important for all of these folks whether they allocate a significant portion or some you know modest portion of their portfolio to these assets. It is important just because you get to start learning about them and so we are overwhelmed with that type of response now.
So, it is virtually impossible to imagine that you have this level of interest if you don’t have an allocation. But I think those allocations, they are really gonna take years and they will start small and they will increase in size over the next decade.
I mentioned earlier your partnership with Alan Howard, he, of course, is a macro legend, he co-founded one of the world’s best known hedge funds, Brevan Howard. What is the story of Eric behind your partnership with Alan Howard? How did the two of you come together?
Alan is an amazing trader and investor and kind of business person too. I have known him for the last decade. We talk about macro markets, a lot of exchange ideas, information, etc, and we kind of explored something a few years ago potentially doing something together and it wasn’t really the right time. He called me this late summer and just said I think it is time for us to restart those conversations. Aaron Landy is his CEO, so Aaron runs Braven and so we all discussed the best way that we can capitalize on the decade ahead which we think will be extremely difficult for investors and really bring the most value to our clients and felt you know One River is a macro firm and at our heart, we very much take a solution oriented approach to how we interact with our clients. I am a collaborator by nature, so we think a lot about how to work with our clients to help them think through their big problems and issues and then deliver investment solutions to them. Braven is the greatest macro firm in the world and you know our view was collective that we could be better firms if we work to collaborate and help our clients, think through the issues, and deliver solutions to them. So they took a 25% stake in October 2020 and it has been you know there have been all kinds of things we have been able to do together. But it has been a wonderful partnership and it’s great to work with both Alan and Aaron. I think Aaron’s vision for Brevin looks much more solution oriented or partnership oriented with their clients. So that’s how it worked out and it was great because it is nice to know people for a long period of time and then be in business with them.
This event is called The Year Ahead for a reason because we want to look into the future and we have been talking a fair bit about the future. But let us talk about the next year. A year from now, what do you think this digital asset landscape will look like? What do you think Bitcoin will be trading at? What will have evolved in the way of infrastructure and appetite for digital assets?
Well, I think that prices will be higher and they will continue to be volatile, but ironically there are all kinds of reflexive dynamics in these assets that ironically will lead to less volatility the higher they go in terms of the higher price goes. This is because what you are doing is as the prices are going higher. You are drawing in new types of investors with stronger hands, quite frankly and so I think over the next year, a lot of money will be drawn into these assets and that prices will be higher. There probably will be volatility in the sense that markets always try to get ahead of themselves or they will try to inevitably get ahead of themselves and I think there is a lot of expectation of institutional allocation of this space that will happen. We are building one of the on-ramps and I think will be the leading on-ramp for institutions to get access to this space. And so I think we will have a good pulse on what those flows look like over the next year. But they are absolutely coming. I think that the regulators play an important part here and from our work and discussions, I think they are most interested in making sure that this digital asset kind of foundation is firm, so you will continue to see regulations come out that try to increase the transparency in this whole asset class and I think that is a good thing. What is happening right now is you are seeing these regulations come in not to destroy this asset class but to really make it a firm foundation because regulators understand that the future of finance will be digital. And so if they were to somehow really damage this asset class, what they ultimately do is they harm the foundation for the US entrepreneurs to bring innovation to the space of digital assets. And we will see that to our competitors and our adversaries quite frankly. So I think it will see more regulations and it will ultimately be sensible regulation and I think that will lead to more flows in this asset class.
I think we will also see the last thing more second layer applications and things built around these assets that will start to really kind of tease people’s imagination about where this can go and so as I said you know these assets tomorrow looks better than today and so in a year’s time you and I will be having conversations like this and you will ask questions about hey how about the payments system that was built on top of Bitcoin? What do you think about that?
With this, we end this interview of cryptocurrency future predictions from experts and understanding of the market. We hope by this time you have successfully understood the institutional future of Bitcoin and also the future of crypto in the next 5 years. Having said that, we recommend that you do your own research before you plan to invest your money in this asset class or any other investment channel.